Four Headwinds Facing First-Time Buyers BY HOLDEN LEWIS | SPECIAL TO NATIONAL MORTGAGE PROFESSIONAL
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he COVID-19 pandemic has touched all phases of the homebuying journey. Today’s first-time home buyers find themselves flailing in cross-currents: • Fearing health risks, homeowners have delayed putting their homes up for sale, limiting supply. • All-time low mortgage rates have encouraged even more buyers to leap into a fiercely competitive market. • Meanwhile, tighter mortgage standards make it a bit harder for even well-prepared buyers to get loans. • Average home prices rise higher, faster — beyond the affordable range for first-timers. These public health and market forces are amplifying affordability issues for first-time home buyers, threatening to delay their dreams of homeownership. To find success, prospective buyers must be persistent, patient and preapproved.
SELLERS SLAM DOORS Just as the spring homebuying season was gearing up, word came that the novel coronavirus could spread from person to person. Rather than risk exposure, would-be sellers withheld their homes from the market. “People pulled back because they didn’t want people in their homes,” says Terri Robinson, a Realtor with RE/MAX Select Properties in Ashburn, Virginia. As sellers sidelined themselves, the inventory of homes for sale stayed relatively flat instead of zooming upward. In
June, 1.54 million existing homes were for sale, a 20% drop from the housing inventory a year before, according to the National Association of Realtors. A skimpy inventory isn’t a problem when demand for homes is low. But even in the pandemic’s early days, home buyers outnumbered sellers — and the Federal Reserve was about to motivate more people to go house shopping.
RATES INCITE COMPETITION The spread of the coronavirus triggered stay-at-home orders, which spiked unemployment, which begat a recession. Congress and the Federal Reserve firehosed money at the economic downturn to extinguish it. In March, the Fed began buying billions of dollars’ worth of mortgage-backed securities to force mortgage rates lower. The central bank succeeded. The 30-year fixed-rate mortgage averaged 3.86% in January, according to NerdWallet’s daily survey. By August, it averaged 3.08%, and has remained low since. The dramatic decline gave borrowers more buying power. The prospect of bagging a bargain inspired would-be home buyers to dip their toes into the market. But these eager buyers discovered that a lot of other people had the same idea. There weren’t enough homes for sale to accommodate them. When buyers toured homes and made offers, they discovered they were pitted against one another. CONTINUED ON PAGE 39
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