NerdWallet 2021 Home Buyer Report

Home Buyer Optimism Returns After Harsh 2020

By Elizabeth Renter
January 26, 2021

The homebuying market of 2020 was unlike any we’ve seen before: Prices were high, inventory was scarce and buyers competed to take advantage of record low mortgage rates, all amid (and in large part due to) a global pandemic. But would-be buyers are looking to 2021 through rose-colored glasses, according to a new survey.

Optimism has been a recurring theme in our annual Home Buyer Report. Since 2018, we’ve reported on the positive outlook among potential buyers, informed largely by the share of Americans who plan to buy a house in the near future. This year, it’s no different — 11% say they plan to buy a home in the next 12 months, according to the NerdWallet survey conducted online by The Harris Poll in December among over 2,000 U.S. adults. That would translate to 28 million home buyers. Considering that in each of the past five years around 5 million existing homes were sold, and less than a million new homes, it’s not a reach to call these 28 million extremely optimistic, if not unrealistic. 

But the fact that so many have a positive outlook shows that the stresses of the last year may be easing, at least for some. Nearly 2 in 5 (39%) of those who had planned to buy in 2020 (as of Jan. 1, 2020) postponed or canceled those plans due to the coronavirus pandemic or related effects, according to the survey. And how long the pandemic and its effects will last is yet unclear.

“Maybe one-quarter that number of people will actually buy homes in 2021,” says Holden Lewis, NerdWallet home and mortgage expert. “Millions of people are eager to own, and the pent-up demand keeps growing. To be successful in 2021, buyers will need to prevail against competing offers, rising prices and cautious lenders.”

Previous Home Buyer Reports

2020

2019

2018

Key findings

The coronavirus pandemic interrupted, but didn’t quash, homebuying plans: 39% of Americans who had planned to purchase a home in 2020 postponed or canceled those plans due to the pandemic or related effects, while 43% fulfilled those plans or were in the process of doing so at the time of the survey.

Lack of supply made home-shopping hard: Nationally, active listings were down 26% in 2020 compared with 2019, according to NerdWallet analysis, making competition tough for buyers braving the market. 

Millions plan to buy in the coming years: 28 million Americans say they plan to purchase a home in the next 12 months, and about 26 million hope to become first-time home buyers within the next five years. 

Given the freedom of remote work, many look to new living locations: 44% of Americans have worked remotely at some point since March 1, 2020, and 25% of those who have worked from home or another remote location say they bought or plan to buy a home in a different location as a result of their ability to work remotely. 

Ongoing homeownership costs are major financial stressors for recent buyers: 41% of those who have purchased a home in the past 12 months say affording home repairs and maintenance is one of their biggest financial stressors as they look at the coming two years. More than one-fourth (28%) of recent home buyers cite making their monthly mortgage payments as among their biggest money stressors for the next two years.

Pandemic was not the only stumbling block

Despite the homebuying market being robust in 2020, many people decided to hold off on their homebuying plans rather than settling for virtual home tours, closings in parking lots or stiff competition from other buyers.

Nearly one-fourth of Americans (23%) said that as of Jan. 1, 2020, they had been planning to buy a home in 2020. But 39% of those homebuying hopefuls postponed or canceled those plans because of the coronavirus pandemic or related effects.

Among current nonhomeowners, there are several additional obstacles. The most commonly cited things preventing this group from pursuing homeownership at this time, according to the survey — not having enough saved for a down payment (38%) and their credit score (32%) — would have been particularly tough to overcome in 2020. Very low mortgage rates drove up demand for purchase and refinance loans, and lenders responded by tightening standards. It became more difficult to get a mortgage if you didn’t have liquidity and impressive credit, though some options remain, and still remain, available.

“FHA and VA loans are designed for people with small down payments and less-than-perfect credit, but who otherwise are in sound financial shape,” Lewis says. “VA loans, which are guaranteed by the Department of Veterans Affairs, allow for a zero percent down payment, and they’re a great deal for veterans, active-duty service members and others who qualify.”

» MORE: Learn more about FHA loans

Home buyer tip: Getting a mortgage is more difficult now than one year ago. Requirements have been raised across the board, and even traditionally more lenient mortgages are tougher to get. The better your credit, the lower your debt-to-income ratio and the bigger your down payment, the more likely you are to be successful and lock in a low rate.

2020 buyers found homes in short supply

Not every homebuying hopeful let the crises of 2020 stand in their way. Of Americans who planned to buy in 2020, 43% either purchased a home or were in the process of doing so at the time of the December survey. These buyers were faced with a short supply of homes across the nation because would-be home sellers were also holding off on plans due to the pandemic.

More than one-fourth (28%) of current homeowners say the coronavirus pandemic is preventing them from putting their home on the market at this time. And 2020 began with low inventory, a situation that only worsened as lockdowns began in March.

Nationally, there were roughly 914,000 active listings on the market, on average, in any given month of 2020, compared with 1.3 million in 2019, according to inventory data from Realtor.com. That’s a year-over-year decrease of 28%.

Home buyer tip: There’s no guarantee that the supply of homes will bounce back to previous levels in 2021, so buyers should prepare for bidding elbow-to-elbow with others. Successful offers will need to be competitive. Even offering full asking price may not be enough in some markets, so consult with a local real estate agent about trends they’re seeing where you hope to buy. If homes are consistently selling for more than asking, you’ll need to up your ante to stay in the game.

Prospective buyers optimistic about 2021

Millions plan on buying homes in the coming years, according to the survey, and many for the first time. About 26 million Americans plan to become first-time buyers over the next five-year period. And 11% of Americans, or 28 million, plan on buying a home in the next 12 months. That’s the same proportion (11%) who said they’d be buying in 2020, when we asked in last year’s report, a figure we reported as remarkable.

Of those planning to buy in the next 12 months, 58% say they feel better about their ability to purchase in 2021 compared with 2020. And 59% of those planning to buy in the next 12 months who feel better about their ability to purchase say they feel that way because the economy will be stronger in 2021.

Among all Americans, 43% say the current economy and political climate would make them more likely to buy a home in the coming year if they were in the market for a house, down slightly from last year (49%).

“Buying a home is a realistic goal for most people,” Lewis says. “But it might take longer than expected to save money and build credit. As vaccines roll out and the economy recovers, folks’ confidence in their homebuying potential will grow.”

As vaccines roll out and the economy recovers, folks’ confidence in their homebuying potential will grow.

Holden Lewis, NerdWallet home and mortgage expert

Remote work and school shape wish lists

The pandemic changed how people work, with many companies giving their employees the freedom to work from home. In fact, 44% of Americans have worked remotely at some point since March 1, 2020, according to the survey. This shift is changing how and where people want to live.

One-fourth (25%) of those who have worked from home or another remote location since March 1 say they bought or plan to buy in a different location as a result of their ability to work remotely.

Further, the features on potential buyers’ wish lists show signs of more time at home: 53% of those planning to buy in the next 12 months cite “outdoor living space” as one of the features that would have the most impact on their decision to make an offer, and 44% cited sufficient space for a home office. Sufficient space for at-home learning is among the most impactful home features in deciding whether to put in an offer according to 41% of parents with children under the age of 18 who plan on buying in the next 12 months.

Home buyer tip: Not being tied to a commute can open you up to more affordable neighborhoods and even different towns and states. By branching out farther from a given location, you’ll have a greater number of homes to choose from in a market where the pickings are slim. You can use this flexibility to your advantage, although traveling to scope out new locales while the pandemic rages is tricky.

New homeowners face financial challenges

Being optimistic about buying a home doesn’t necessarily mean having a carefree financial picture, and 83% of those planning to purchase a home in the next 12 months say they will have financial stressors over the next two years.

For those who have recently purchased a home, ownership costs are weighing heavy. Roughly 2 in 5 (41%) of those who have purchased a home in the past 12 months cite affording home repairs and maintenance as one of their biggest financial stressors in the coming two years. And more than one-fourth (28%) of recent buyers regard making their monthly mortgage payments as among their biggest money woes.

In the midst of a recession, it’s clear that economic hardship has hit some households particularly hard — 24% of Americans, overall, cite paying for necessities like groceries and utilities as among their biggest financial stressors over the next two years.

Home buyer tip: Budgeting for a down payment and moving costs is only the beginning. Make sure to set aside a portion of your budget for regular home maintenance and unexpected repairs alike. One rule of thumb is to set aside about 2% of your home’s value every year for ongoing upkeep. The emergency fund of a homeowner should be bigger than that of a renter — you’re responsible for many high-dollar items that renters aren’t.

methodology

This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from Dec. 8-10, 2020, among 2,027 U.S. adults ages 18 and older. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact Anna Palagi at [email protected].

Population calculations based on the U.S. Census population estimates as of July 1, 2019.

Monthly active listing counts are from monthly Inventory Data from the Realtor.com residential listings database as of January 2021.