Buyer’s remorse and homeownership

By : J. David Chapman/June 20, 2024

Last week, I wrote about the decision to renovate or relocate. Many readers wrote me and told stories of relocating during the pandemic, realizing their current home no longer fit their needs. As an academic, I receive and review research. I recently received results of a survey on those who recently purchased homes. The survey was commissioned by Bankrate and found that 47% of those who recently purchased a home have regrets on their purchase.

This was not too surprising to me because when people find out I teach real estate, they usually have a story to tell. One of the most common narratives they describe is selling their home thinking they received a wonderful offer, not realizing how difficult it would be to find their new dream home. Many tell a story of sacrificing on the amenities they thought they would be able to afford and some even ended up in multiple-offer situations to get that home. All said and done, many have what we call “buyer’s remorse.”

Buyer’s remorse is a real estate professional’s nightmare. The expectations of homeownership in America, described as the “American Dream”, is likely a bit exaggerated and sets up buyers for disappointment. In surveys, buyers describe homeownership as the key to a successful career and retirement. Really, that’s the key to success?

Beside the unreasonable expectations of homeownership, another issue is simply the financial reality of home ownership today. We have always considered long-term, amortized loans important to buyers so the payment would be predictable and change very little over the life of the loan. The reason this was possible was the property taxes and insurance, that was packaged into that loan, changed very little over time. Unfortunately, with property values increasing, the property taxes and insurance are both changing significantly on an annual basis, changing the affordability of homeownership.

Another financial realism is that maintenance is always more extensive and expensive than anticipated on a new home. Buyers are reporting spending more money on heat and air systems, dishwashers, refrigerators, washer/dryers, garbage disposals, plumbing and electrical issues than budgeted, again affecting the affordability of ownership.

Ironically, when questioned about the purchase, they did have remorse, however 69% of homeowners claim they would still purchase the home. While a bit confusing, this still indicates Americans are not yet ready to become a rental society and give up that American Dream.

Dr. J. David Chapman is Professor of Finance & Real Estate at The University of Central Oklahoma (jchapman7@uco.edu).