Are Home Buyers Reframing Their Preferences In This Housing Market?

The S&P CoreLogic Case-Shiller Index reported a 6% annual increase in national home prices for January 2024. At the same time, the inventory of homes for sale remained at a low 3-month supply. But even at a lower supply, housing inventory is expected to keep increasing throughout the year, based on market predictions.

While low inventory and high prices are not deterring some buyers on their path to home ownership, these factors may be reframing their preferences and expectations.

To see what types of homes buyers were interested in – or not – Rocket Mortgage^® surveyed 1,500 Americans who planned to buy a home in the next 5 years. Researchers ran a test showing a random combination of home attributes, presented in four homes. These attributes fell under specific home features:

• Number of bedrooms and bathrooms
• Home style
• Location
• Square footage
• Lot size
• Sale price

Once presented with the four homes, participants were asked to choose their favorite property. This test was run 10 times to reveal the weight each feature and its associated attributes had on the participant’s overall preference.

The features that had the most influence on home buyers’ decisions were home style (32.2%) or lot size (21.4%). At just 11.9%, home sale price was one of the least impactful. The feature that home buyers seemed to care the least about was square footage (5.9%).

As participants went through the series of home variations, analysis recognized the attributes in homes that participants were making tradeoffs between – choosing more and less often. Through this, a model was able to indicate the given weight an attribute has in the participants’ overall decision to buy a particular home. The model was then able to use these weights to reveal the most preferred home among all participants.

The study also showed how many participants would reframe their preferences and take the “standard U.S. home” – built from national averages from the Rocket Homes^SM multiple listing service (MLS) and the Census – over not buying a home at this time. Through the series of homes shown, including the standard home and most desired home, and with the option of not buying a home at all, participants showed that homeownership was the actual dream, not the home itself.

The Standard U.S. Home

Based on Rocket’s research of the average properties for sale on the Rocket Homes MLS and the Census Bureau’s characteristics of new single-family houses sold, the standard U.S. home is:

• Three bedrooms
• Two bathrooms
• Ranch style
• Located in the suburbs
• 2,000 square feet
• On ¼ acre of land
• Priced at $400,000

The Most Desired Home

Presented with various combinations of prospective homes on the market, participants revealed which attributes they preferred more and less. Based on each preference throughout a sequence of different combinations, our model used these attributes’ associated weights to create the most popular combination. As such, the “most desired” home is:

• Four bedrooms
• Three bathrooms
• Contemporary style
• Located in the suburbs
• 2,750 square feet
• On 1+ acre of land
• Priced at $375,000

All in all, the most desired home was preferred by 82.4% of participants. Of those, 10.4% said they prefer the desired home and would not take the standard home over no home at all, while 71.7% said they prefer the most desired home but would still take the standard home over not buying a home at all.

This is despite that fact that the standard home has fewer bedrooms and bathrooms, square footage and acreage and costs more than the other home. This indicates buyers would pay more for less if it meant they would get to become homeowners.

When all the features of the standard home were presented to participants, with one change – the home style was a condo instead – only 47.5% said they would rather buy the “standard” condo over not buying any home.

It isn’t just that people don’t want to pay the average single family home price of $375,000 for a condo. According to the National Association of REALTORS® (NAR), the average price for a condo is $343,800. When the price was dropped to this amount, there was only a 4.6% lift in preference, with just over half of participants agreeing to take the condo over no home at all.

When another attribute that’s common of condos – smaller lot size – replaced the standard lot size, even more people dropped out. When lot size was changed to “no backyard,” only 27.1% said they would take that home instead of not buying. This reiterates the earlier statistics on what features matter to buyers – while affordability is on the minds of many buyers, it isn’t prioritized over such things as having a certain type of home and having more lot size.

The pandemic caused historically low interest rates to support more spending, which prompted many homeowners to refinance their loans. Then, to combat the post-pandemic inflation, the Federal Reserve (Fed) performed a series of rate hikes year-over-year (11 times in almost 2 years). Not wanting to exit from such a deal, those who refinanced were stubborn on leaving their homes – and low rate. This, in part, caused a shortage of inventory.

Higher mortgage rates, sky-rocketing housing prices and low inventory levels have made it more difficult for buyers to find a home that checks everything off the list. This can be especially true for first-time home buyers who may not have a large down payment, high housing budget or negotiating knowhow to find a home in their price range and outbid others in today’s seller’s market. (This is where real estate agents can be evermore useful.)

If a buyer’s main goal is homeownership while shopping in today’s U.S. housing market, they will likely need to reframe their idea of what “must-have” features matter more than homeownership itself. But as this study shows, more than half are willing to do just that. In the real estate market frenzy of 2022-2023, many home buyers compromised on preferences, exceeded their budgets and/or chose to forgo important steps – like home inspections – to win the bid. This isn’t unique to the current market. In any seller’s market, buyers often compete for homes and pivot their strategies to have the most desirable offer.

But should they? That answer depends highly on their own unique situation, housing goals and housing needs. While some are still settling into their homes – recent housing studies have shown that a majority of 2022-2023 buyers have regrets about purchasing their house – for a variety of reasons, including spending too much, buying in a less-than-ideal location and not being educated enough on the home buying process. But common among all studies? Home buyers felt they compromised too much on their dream home.

While experts predict a better housing market in 2024, there may still be challenges for buyers. Those who want to avoid a post-purchase hangover can do so by setting realistic expectations, noting what features they could do without and drawing a clear line in the sand for what they will not sacrifice. That may mean being more lenient on things like style, size and features, but refusing to exceed budget, change location preferences or forgo a home inspection. Buyers should approach the process with the understanding that this market may require compromise. But just because buyers may to need reframe their idea of the dream home, it doesn’t mean they can’t find a property that fulfills their dream of homeownership.

To understand more about home buyer preferences, Rocket Mortgage surveyed 1,500 U.S. adults looking to buy a home in the next 5 years. Respondents were also segmented on whether they are currently a homeowner and if they are currently in the market to buy a home.

Respondents were taken through a choice-based conjoint test. The conjoint analysis was used to understand the relative importance of six different home attributes to a buyer’s final home choice, and how the variances in these attributes affect buyers’ preferences. Variances in the lot size, price and square footage of home were level set based on U.S. national averages in December 2023. Variances in all other attributes were based on research of the most common variances in homes in 2023. The “average U.S. home” base level comparison used was level set on all the most moderate variance of each attribute.

This survey was U.S. Census balanced on gender, age, region of the United States, ethnicity/race, and household income. This survey was completed on December 19, 2023.