RE investors base a purchase price on future expectations, but the pandemic created market confusion. As a result, first-timers face less competition for starter homes.
The mix of homebuyers has been shifting since the pandemic began: Investor numbers are shrinking, as the number of first-time homebuyers is on the rise. First-timers don’t have to sell one home before purchasing another, and many have a newly boosted appreciation for homeownership after weeks of isolation.
In April 2020, the share of first-time buyers rose to 36%, a year-to-year increase from 32%, according to the National Association of Realtors®’ April 2020 Realtors Confidence Index Survey.
“Homebuyers are facing less competition from investors, and they are also benefiting from low mortgage rates,” says Scholastica “Gay” Cororaton, a, NAR researcher on the Economists’ Outlook blog. With fewer investors, cash sales dropped to 15% of existing-home sales in April, down from 20% a year earlier.
Record low mortgage rates also entice some first-time buyers. The estimated monthly mortgage payment on a home purchased at the median price of $286,800 with a 10% down payment on a 30-year fixed-rate mortgage was $1,131 – $90 less than the median rent of $1,041 in the first quarter of 2020.
Meanwhile, as first-time buyers increase in the marketplace, investors retreat. Those who plan to rent out a home to fix up and rent may perceive greater financial risk associated with renters due to the COVID-19 pandemic. Cororaton thinks investors are unlikely to purchase single-family properties at the rate they did during the Great Recession, which had sparked a wave of discounted foreclosures.
“In the current health and economic crisis, properties are not being foreclosed,” Cororaton notes. Also, so far, home prices are standing firm.
Source: “5 Housing Market Trends as Of April 2020,” National Association of REALTORS® Economists’ Outlook blog (May 22, 2020)
© Copyright 2020 INFORMATION INC., Bethesda, MD (301) 215-4688