Who Is Still Buying In Today’s Market?

Only 20% of survey respondents in June felt that it was a good time to buy a home.

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Sarah Wolak
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Aside from buyers’ equity and credit concerns, the buying pool is shrinking and buyers are showing signs of reluctance to the housing market. The Mortgage Bankers Association reported an all-time low of mortgage application activity for the week ending July 22, and said that this low was last reached during February 2000. The percentage of first-time homebuyers looms around 30%. In May of this year, only 30% of survey respondents said that it was a “good time” to purchase a home. In June, however, Fannie Mae said that only 20% of buyers reported back that it was a good time to buy. 

Nadia Evangelou, the National Association of Realtors (NAR) senior economist and director of forecasting, reiterated that the current buyer pool is shrinking exponentially due to unaffordability, with 20% of households being unable to afford available homes. “20% of first time homebuyers currently spend 50% of their income on rent,” Evangelou said. “Even though more homes are becoming available,buyers now need to earn at least $125K to buy comfortably. With that being said, we’re encouraging younger homebuyers to rent instead.”

Evangelou also said that according to NAR’s June 2022 data, homeowners who bought their houses three years ago pre-pandemic would be unable to afford the same houses they purchased if they bought them today. “Although there were 526K sales in June 2022, that was still 2,000 down from June 2019’s data,” Evangelou said. “For homes in the price range $100-$250K, home sales dropped by 31%, which is the biggest drop we’ve tracked.”

Daryl Fairweather, chief economist at Redfin, said that right now the market is attracting buyers that had trouble at the beginning of the year. “These buyers are now stepping into the market after they faced competition from all-cash buyers or buyers that offered large down payments at the start of the year,” Fairweather said. “That’s not necessary anymore since the volume of offers is down.”

To Buy Or Not To Buy

With the housing market increasingly becoming competitive and selective, Zillow economist Nicole Bachaud says that buyers shouldn’t try to “time the housing market.” Bachaud says that the best time to buy a home ranges on a case-by-case basis that is dependent on what the buyer feels comfortable paying for. 

“Millennials are the largest generation in U.S. history, and right now many of them are in their early- to mid-30s, typically prime time for buying a first house. They are competing with baby boomers for houses as well, who have been more active in the market than in the past. While many buyers are exiting the market right now due to rising costs and affordability challenges, demand is not going anywhere and will pick back up if and when homes become affordable.” 

Bachaud also said that the combination of price appreciation and high mortgage rates is pushing many potential buyers to the sidelines. “Those able to weather the storm are seeing a faint silver lining in the clouds, as shopping conditions have relaxed slightly from the ultra-competitive market seen through most of the pandemic,” she said. “Buyers currently priced out of the for sale market are likely faced with rising costs in the rental market, making it that harder to save up and later transition into home buying. But if prices do come down, these potential buyers will be waiting anxiously to jump on the opportunity to find their dream home.”

Over the next six months, Bachaud and her team at Zillow anticipate price growth to continue to moderate, which means easing up from the record high 20.9% annual growth seen in April but still higher than long-term averages. However, Bachaud says that if buyers are going to reenter the market, interest rates will need to drop. 

Post-pandemic, less companies are expecting employees to show up daily to the office, which sparked a migration trend in 2021 that has only grown. Many are moving to small cities and suburbs now that there’s freedom to work from multiple locations. Bachaud said that rent growth peaked at record highs in February but has since decelerated. “This influx of demand was likely a one-time scenario, driven by a combination of the gradual reopening of the economy, people moving into their own place from shared accommodations, and a slow return to work in city offices,” Bachaud said. “The cost of buying a home may see rent growth pick back up in the coming months as renters opt to renew their leases or look for another rental rather than wade into the expensive for-sale market.”

Fairweather also said that Redfin is noticing that the share of relocations is increasing as working from home becomes more available. She said that more buyers are shopping outside of their expensive metros and, in turn, are looking for long-term housing options rather than flipping or selling quickly. 

How To Market When The Pool Keeps Shrinking 

Mortgage professionals are feeling the strain of a limited buyer pool. Conversely, potential homebuyers are feeling squashed by looming interest rates and mortgage rates. Evangelou recommends that first time home buyers opt for 5-year adjusted-rate mortgages (ARMs) due to rates offered below 4.5%. Additionally, Evangelou encourages mortgage professionals to cater to first time buyers by offering smaller options in affordable areas, granted that inventory is still limited. Evangelou also reminded that prior homeowners and boomers have an advantage over first time buyers, so showing them smaller, affordable homes as quickly as possible helps to increase first time buyers’ leverage.

Bachaud, on the other hand, recommends highlighting key features of a home that will draw in first time buyers, such as updated or state-of-the-art appliances. Bachaud and her team recommend that sellers make at least two home improvements, such as painting or landscaping, prior to selling their property. Strategic improvements, such as painting bathrooms pale blue, can cause listings to sell for upwards of $5,000 more, according to Zillow research. 

Bachaud also recommends that sellers are meticulous about their online photos and curb appeal. “Most buyers begin their home search online, especially now. Talk to your agent about using professional high-res photography, drone photography, or video footage to show off your home’s best features.” 

Fairweather says that mortgage professionals also should help their buyers understand different options for affording a mortgage and also educate them on the risks. “Most buyers hear about high interest rates and assume buying a house is just out of the question,” Fairweather said. “However, there’s other options such as adjustable rate mortgages (ARMs) that can help buyers find success.”  

Fairweather also reassured buyers that now is a better time to buy than compared to the beginning of 2022. 

Sarah Wolak Headshot
Sarah Wolak,
Staff Writer
This article was originally published in the Mortgage Banker September 2022 issue.
Published on
Sep 20, 2022
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