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Nearly three quarters of potential buyers believe home prices will increase in their neighborhood in the next twelve months, twice as many as in the first quarter.

Buyers Grow More Worried Over Prices

Nearly three quarters of potential buyers believe home prices will increase in their neighborhood in the next twelve months, twice as many as in the first quarter.

Despite forecasts that prices will increase less in 2013 than this year, buyers are more concerned by rising prices than the overall economy. Thirty-three percent of buyers listed rising prices as a major concern in the fourth quarter, up from just 23 percent in the third quarter. Meanwhile, 22 percent said they were concerned with a weak economy, down from 27 percent in the third quarter, according to the Redfin Real-Time Homebuyer Survey. From November 30 to December 2, 2012, Redfin surveyed 1,084 active homebuyers who had toured a home with a Redfin agent since August 14.

More Than 70 percent of buyers believe prices will rise next year in their markets. The number of buyers who believe prices are rising shot up even higher in the fourth quarter, although most still expect gains to be modest. Ten percent of respondents expect home prices in their area to “rise a lot” over the next twelve months, the same as last quarter; 61 percent expect prices to “rise a little” an increase of ten percentage points over last quarter. Twenty-one percent expect prices to “stay the same,” 6 percent expect prices to “drop a little,” and less than 1 percent expect prices to “drop a lot.”

A growing number of buyers are planning to buy in order to get out in front of rising prices. Thirty-three percent of respondents indicated rising prices as a motivation for buying now, up from 29 percent in the third quarter and just 19 percent in the first quarter. Not surprisingly, a decreasing number of buyers cited “low home prices” as their reason for buying-just 28 percent in this quarter’s survey, down from 33 percent in the third quarter and 40 percent in the first quarter.

More than half (59 percent) of buyers listed low inventory as their top concern with buying now, consistent with last quarter’s rate. When we asked buyers how low inventory was affecting their home search, nearly half (46 percent) indicated that they have expanded their search to include new areas that they hadn’t previously been considering, while 38% indicated that they would be taking a break until more listings come on the market.

In the nine months between Redfin’s first quarter survey and the fourth quarter survey, the percentage of buyers who were also potential home sellers roughly doubled, from 8 percent to 16 percent; after years of rising, the percentage of first-time home-buyers actually decreased from 48 percent to 37 percent. Over that same time, buyers who believe prices will rise over the next 12 months has gone from one in three (34 percent), a minority, to an overwhelming majority, nearly 3 in 4 (71 percent); the number that considered delaying a purchase to see if prices dropped further declined from nearly 1 in 3 (29 percent) to one in 20.

For homebuyers who are not first-timers, we asked if they’re planning to buy a home that is bigger, smaller, or the same size as their current home. The most common response was “much bigger,” at 49 percent. Only 9.6 percent intend to buy a home that is much smaller, while the remaining 41 percent are planning to buy a home that’s the same size but is nicer, more affordable, or in a different location.

Most homebuyers are not very concerned about the Fiscal Cliff and possible changes to the Mortgage Interest Deduction. Although the possible consequences of some of the proposed changes may be large for certain people, only about 5 percent of buyers are seriously concerned and only 23 percent are being more cautious in their home search while they wait to see how things pan out.

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