The pandemic boosted the demand for real estate across the United States. The record-low mortgage rates throughout the past year, as well as savings from holiday trips that were not made, enabled more people to afford dipping their toes into real estate investments.
However, it created a greater demand for homes, and there are not enough properties for sale for everyone who wants to buy. The pandemic restrictions also caused many owners to defer sales. They did not want to expose their family to the virus by opening their homes to potential buyers or moving across the country. For a while, all construction work was halted. The lockdowns only permitted essential activities, and working on-site created a risk of infection.
In addition, the shortage is a culmination of years of underbuilding. The number of single-family units has been relatively low for the past decades compared to the years before the housing bubble and the Great Recession.
Competitive Home Buying
This has resulted in a very cutthroat market for buyers. Everywhere across the nation, people are competing to purchase a property. They are submitting multiple offers to outbid other buyers. Some buyers offer to pay in cash to have an advantage over competitors.
It is driving the cost of becoming a homeowner up. Even if mortgage rates remain low, the market is just not favoring buyers right now.
And, young first-time homebuyers could not compete.
First-time Homebuyers Exit Competition
The number of properties that have been listed for sale in the market rose this year. By July 2021, there were around 1.32 million unsold homes, a 2 percent growth from the month prior.
People are still snapping up homes, but most of it is happening in the upper-end markets. There is no longer sales growth in mid- to lower-tier markets. Experts explain that there are still not enough starter homes available to those buying a house for the first time.
A report by the National Association of Realtors revealed that first-time homebuyers account for 30 percent of sales in July 2021, a slight decrease from 31 percent in June 2021. However, the difference is stark compared to last year. The number of house sales to first-time homebuyers is lower by 34 percent than in July 2020.
First-time homebuyers are already facing a lot of difficulties buying a home. They are typically young and have no extensive credit history. They also have a shorter employment history, have had less time to save up for a deposit, and have a lower income.
All these give them a disadvantage, especially in a hot market.
First-time homebuyers can still borrow funds to buy a house to call their own. Some hard money lenders are more lenient than traditional financial institutions and will approve a loan application much faster.
But the rising prices of real estate properties continue to be an issue. A person who earns $100,000 can acquire a $300,000 home. The general formula to determine if a household can afford a purchase is multiplying their income by three. However, in major cities across the nation, list prices were about 5.5 times the median income of first-time buyers.
Becoming a homeowner, at least right now, is an unreachable dream for many young people. Millennials, who are hitting their peak homebuying age, are being held back by the rising cost of owning a home. The generation has already suffered through the Great Recession. Now, they are facing another crisis that prevents them from becoming homeowners.
Outlook for 2022 and Beyond
There was a point in 2020 when the market was favorable for first-time buyers. Those who took advantage of the very short window of opportunity enjoyed low mortgage rates, faced fewer competitors, and relatively more affordable options.
Some analysts believe that the home prices will stop soaring and might drop in the coming months. Others think that, in the best-case scenario, home prices will start to level off as supply bounces sometime in 2022.
The current housing boom will flatten when the mortgage rates begin to rise again, but that may not happen until 2023.
Unless construction of starter homes significantly picks up, many young people might have to wait a little longer to become homeowners. The housing market is estimated to need 5.5 million more units to satisfy the demand.
There is currently a high demand for housing units in the U.S. However, there are not enough homes right now, and it is driving prices up. For many first-time homebuyers, the market is too competitive and expensive. If one has the desire to purchase a property, they’d have to take extra care and caution to do it right.