What Do Home Buyers Buy after Moving

October 17, 2013

In a post last week we discussed NAHB research showing how during the first two years after closing on a home sale, home buyers tend to spend money on furnishings, appliances and remodeling considerably more compared to non-moving owners. Buyers of new homes spend most, outspending non-movers by a factor of 2.8. Buyers of existing homes spend twice as much as non-moving owners. This post reveals particular items that are most popular with home buyers and helps explain changes in their spending behavior triggered by a house purchase.

The NAHB analysis of the Consumer Expenditure Survey (CES) data from the Bureau of Labor Statistics shows that the biggest outlay in the budget of new home buyers is furnishings. They spend $5,288 on furnishings during the first year after buying home, outspending buyers of existing homes 2.2 times and non-moving owners 5.3 times. Average spending is estimated for all households in the group regardless whether they purchased a certain item or not. Thus, higher averages may point to larger and/or more frequent spending by the group.

Single-Family Detached Home Owners’ Average Annual Spending on Various Items, 2007$

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The biggest ticket item for all home owners is bedroom furnishings, including mattresses. However, buyers of new homes spend twice as much on this item as existing home buyers and outspend non-moving owners six times.  This is not surprising considering that the number of bedrooms in new single-family detached homes has been on the rise.

The second largest furnishings outlay for home buyers is sofas. New home buyers spend on average $746 during the first year after moving, more than double of what existing home buyers spend, and more than six times the amount spent on sofas by non-moving owners.

The differences are even larger when comparing spending on window coverings. New homebuyers outspend existing home buyers 7.7 times and non-moving owners 24.7 times.

New home buyers also outspend non-moving owners on every single appliance listed in the CES. They also tend to outspend existing home buyers across almost the entire range of appliances. The few exceptions include lawnmowers, gas stoves, built-in dishwashers, and some other miscellaneous appliances. The high level of spending by new home buyers may seem surprising considering that many new homes come with installed appliances, but the data suggest that these purchases are nevertheless more frequent among these households.

New home buyers spend the most on televisions, refrigerators, clothes washers/dryers, and computer systems – items that are less likely to be included in the purchase of a new home. The most expensive appliances in the budget of existing home owners are clothes washers/dryers, refrigerators, and lawnmowers.

Somewhat surprising, new home buyers spend almost as much as buyers of existing homes and outspend non-moving owners on property alterations and repairs. However, the specific types of remodeling projects are quite different across the groups. As expected, buyers of existing homes and non-moving owners spend more on various repairs and replacements. As a matter of fact, existing home buyers spend more than new home buyers on every single item the CES lists as a repair or replacement. They also outspend new home buyers on kitchen/bathroom addition or remodeling, and purchasing and installing new items such as HVAC, plumbing, electrical and security systems, paneling, flooring, siding, windows and doors.

However, when it comes to outside additions and alterations, including additions of patios, terraces, new driveways, and fences, new home buyers outspend existing home buyers and non-moving owners by far. There are several items where non-moving owners outspend homebuyers, including addition of detached garage, repairs of driveway/walk, siding/roofing, replacements and repairs of doors and windows.


The Ripple Effect of Home Buying

October 9, 2013

Using the Consumer Expenditure Survey (CES) data from the Bureau of Labor Statistics (BLS), NAHB Economics research shows that a home purchase triggers additional spending on appliances, furnishings, and remodeling. Such spending typically exceeds that of non-moving home owners and persists for two years after moving.

The NAHB analysis compares spending behavior among three groups of single-family detached home owners: buyers of new homes, buyers of existing homes and non-moving owners. During the first two years after closing on the house home buyers tend to spend on appliances, furnishings and property alterations considerably more compared to non-moving owners. However, home buyers tend to be larger households with children, and on average wealthier, with higher levels of education and concentrated in urban areas. Any of these factors could potentially explain higher spending on appliances, furnishings and remodeling by home buyers. Thus, the NAHB analysis controls for the impact of household characteristics on expenditures, and, nevertheless, finds that a home purchase alters the spending behavior of homeowners and that otherwise similar homeowners spend more across all three categories compared to non-moving owners during the first two years after moving. Ripple_blog1

Looking at spending patterns of new home buyers and identical households that do not move, the differences are largest on furnishings. A typical new home buyer that buys a new home is estimated to spend in excess of $3,000 more on furnishings than an identical household that stays put in a house they already own. The elevated level of spending persists into the second year as new home buyers spend additional $2,000 over their typical budget on furnishings.

Similarly, moving into a new home triggers higher levels of spending on appliances. A typical new home buyer that moves into a new home is estimated to spend $1,005 more on appliances during the first year compared to a non-moving owner. The difference shrinks to $348 during the second year and goes away after that.

In the case of property repairs and alterations the differences are smallest, $740, and last only one year, which is not surprising considering that most households would not want to spend years in a house with ongoing remodeling projects.

Buying an older home also triggers additional spending. The typical buyer of an existing home tends to spend close to $4,000 more on remodeling, furnishings, and appliances compared to otherwise identical homeowners that do not move. However, in case of buying an older home, most of this extra spending goes to remodeling projects, more than $2,000, and occurs during the first year after closing on the house. Only the additional spending on furnishings tends to persist beyond the first year.

Ripple_blog2

The statistical analysis further shows that this higher level of spending on furnishings, appliances and property alterations is not paid by cutting spending on other items, such as entertainment, transportations, travel, food at home, restaurants meals, etc. This confirms that home buying indeed generates a wave of additional spending and activity not accounted for in the purchase price of the home alone.

In summary, the NAHB analysis shows that during the first two years after closing on the house a typical buyer of a new single-family detached home tends to spend on average $7,400 more than a similar home owner who does not move, including $4,900 in the first year after purchase.  Likewise, a buyer of an existing single-family detached home tends to spend about $4,000 more than a similar non-moving home owner, including $3,600 during the first year. The overall ripple effect of home buying does not stop here, as producers of appliances, furnishings and remodelers spend their additional income paid by home buyers and trigger further waves of economic activity.


Improving Markets Index: Athens, GA MSA

December 21, 2011

NAHB recently unveiled an index that tracks housing markets on the mend, the NAHB/First American Improving Markets Index (IMI).  The IMI highlights the fact that housing markets are local and that there are metropolitan areas where an economic recovery is underway.  The index measures three readily available monthly data series that are independently collected and indicative of improving economic conditions.  The three series are employment, house prices and single family housing permit growth.

For the fourth release, 41 markets are classified as improving under a conservative examination of local economic and housing market conditions.  Among these areas is the Athens, Georgia metropolitan statistical area (MSA).

The health of the Athens housing market is due to its position as a fast growing regional healthcare center, the large number of post-secondary educational institutions anchored by the University of Georgia, and retiree relocations.  According to home builder Brad Stephens, the current President of the Athens Area Home Builders Association and co-owner of Manor Holdings, “Between the growing student population at the University of Georgia, and the presence of two award-winning hospitals, our housing market is doing pretty well.”  He went on to say that, “we also have some world-class bio-tech firms such as Noramco and Merial that transfer employees to Athens from all over the world. Athens has also been featured in numerous publications as one of the best places to retire in the country.  These factors all provide an environment in Athens that is better insulated from the booms and busts of the real estate market.”

Comparing educational attainment and employment data from the 2000 Census to the 2009 American Community Survey confirms this.  The number of people with some college jumped from 15,177 to 22,859, and those with an associate degree rose from 3,668 to 5,377.  The number of those with a B.A. increased from 16,597 to 18,901 and those with graduate degrees climbed too, from 13,759 to 17,402. Finally, employment growth in the professional occupations outpaced all other sectors growing by 48% from 5,960 to 8,838.  This is clearly an area that is increasingly focused on higher education coupled with employers eager to hire newly minted graduates.   

According to Susan Bogardus of First American Bank of Athens, “retirees continue to be drawn here due to our proximity to Atlanta, the resources of the University of Georgia, the top-notch medical care, the sports and the affordable housing. ”  She went on to say that “continued construction activity at the University and the building of the new hospital have been a boon to the local economy.”  As a result house prices have held up well during the downturn.  They are up 2.5% since the trough in January 2011 and are about 15% off their all-time high set in September 2007. 

Improving economic conditions have resulted in payroll employment being down just 5,500 from its peak in March 2008 and up by 2.3% since the trough in January 2010.  Single family permitting activity is up a strong 9.1% on a seasonally adjusted monthly average basis from the trough set in March 2011.  While new homes are being built in many parts of the Athens MSA, activity has been primarily centered in Oconee County, due to its outstanding public schools, and in an around the University of Georgia to accommodate the growing student population.


Improving Markets Index: Burlington, VT MSA

December 14, 2011

NAHB recently unveiled an index that tracks housing markets on the mend, the NAHB/First American Improving Markets Index (IMI).  The IMI is intended to draw attention to the fact that housing markets are local and that there are metropolitan areas where economic recovery is underway.  The index measures three readily available monthly data series that are independently collected and are indicative of improving economic health.  The three are employment, house prices and single family housing permit growth.

For the fourth release 41 markets are currently classified as improving under a conservative examination of local economic and housing market conditions.  Among these areas is the Burlington, Vermont metropolitan statistical area (MSA).

The health of the Burlington housing market is in part due to its position as a regional healthcare center, the large number of post-secondary educational institutions including the University of Vermont and St. Michael’s College and the steady stream of retirees who continue to find Burlington appealing.  However, local growth is primarily due to a the rise in software development, anchored by IBM and now Dealer.com, the increasing popularity of telecommuting, and the growing appeal of the local culture, which promotes energy efficiency, eating locally produced food, and generally being “green.”  According to home builder Chris Snyder of Snyder Homes, “new home buyers frequently want energy efficient features including solar panels, geothermal heating systems, passive solar designs and so on.  And it’s cheaper to build that way than retrofit an existing house. ” He went on to say that “many of these buyers pay cash or make large down payments and telecommute to jobs in New York City or Boston.”   As a result, education levels are rising in the area.    

Comparing educational and occupational data from the 2000 Census to the 2009 American Community Survey confirms these impacts.  Today there are 5,125 (or 37%) more service jobs than in 2000 and 3,213 (or 58%) more management jobs.  Reinforcing these findings, the number of people with a high school diploma increased from 35,529 to 36,716, individuals with some college rose from 21,251 to 22,006 and the number of people with an associate degree climbed from 11,338 to 13,119.  However, the number of individuals with a B.A skyrocketed from 27,512 to 32,418 and the number with professional degrees jumped from 16,713 to 18,711. -Emblematic of the changing workforce dynamics, employment in professional services grew by 28%, followed by employment in education which grew by 13%.   

According to Jose Leavitt of Otter Creek Awnings, Sunrooms and Custom Closets, “our house prices never rose like they did in many places and thus have not fallen either.  In part it is because the local economy is good and unemployment is low, and in part it it’s due to Yankee frugality and the fact that builders here are all very small and were able to quickly cut back on production.“  As a result, house prices have held up well over the past few years.  Prices are up 1.9% since the trough in January 2010 and are less than 5% off their high set in September 2007.     

Improving economic conditions have resulted in payroll employment being just 1,200 down from its peak in August 2011 and up by 5.1% since the trough in September 2009.  Single family permitting activity is up a robust 5.3% on a seasonally adjusted monthly average basis from the trough set in March 2011.  While new homes are being built in many parts of the Burlington MSA, activity has been primarily centered in the towns and villages surrounding Burlington including Hinesburg, Sherlock, Shelburne, South Burlington, Williston and Winooski.