As investors and corporations take over the market, things are getting tough for first-time homebuyers. Corporations and investors are purchasing more houses and transforming them into rental properties, making it more competitive for first-time buyers.
First-Time Buyer Competition
In addition to investors scooping up homes, low inventory and record-high prices were already making things competitive for first-time homebuyers.
Home sales to investors increased to 22% in January from 15% one year earlier, stated Lawrence Yun, the National Association of Realtors’ chief economist.
In turn, successful closings of homes to first-time buyers dropped from 33% to 27% at the beginning of 2022. To put things into perspective, first-time homebuyers usually make up approximately 40% of home sales, according to Yun, per NPR.
A historic shortage of homes for sale has contributed to increasing house prices and multiple bids on homes. This has given investors a significant advantage since they can afford to buy homes with cash, which not many first-time homebuyers can do.
Yun told NPR, “First-time buyers have essentially zero chance against cash buyers.”
Nevertheless, the percentage of homebuyers offering cash to close has risen this year. In January, the percentage of those who could offer cash to buy homes rose from 19% to 27%. Sellers prefer cash offers since it is a sure thing for them.
Lack of Available Homes
Homebuilding has still not recovered from the 2008 financial crisis and housing market crash. Ideally, the U.S. would see an average of 1.5 million homes constructed each year for demand to be at par with supply. However, the U.S. has clocked below average for over a decade.
The decline in construction has contributed to the severe shortage of single-family houses, apartments, and condos. Supply chain disruptions continue to hamper the speed at which materials are delivered to construction sites.
Still, homebuilders are trying to bridge the gap by hastening the pace of construction, which may help with the situation. However, homebuilders say the market is still short by 3 or 4 million houses. Supply still needs to be ramped up.
The historic low supply has further contributed to rising house prices. According to the National Association of Realtors, in January, the median sales price of an existing house in the United States increased 15% from the previous year to $350,300. Homes rose by $50,000 on average over the last year.
First-time buyers are still struggling to get money to finance buying a home. This is after 481 U.S. cities have recorded the price of a typical home to be at least $1 million.
In 2021, the number of U.S. cities that surpassed the $1 million threshold tripled compared to those that did the same in 2020.
First-time homebuyers should brace themselves for tough markets ahead.