Wary investors are fleeing the real estate market, creating opportunities for first-time buyers who now face less competition. The share of first-time buyers reached 36 percent in April, up from 32 percent during the same period last year, according to a new survey by the National Association of REALTORS.
While move-up buyers have to worry about offloading their current homes in the midst of a pandemic, renters are unburdened by such dilemmas. First-timers have also been enticed by record-low mortgage rates. The average 30-year fixed-rate loan sank to 3.15 percent this week — the lowest it’s ever been since Freddie Mac began recording such data in 1971.
Sales of investment rental or vacation properties plunged to just 10 percent in April and there were significantly fewer cash transactions, 15 percent compared to 20 percent a year earlier. For investment rentals in particular, the share of total sales fell to 6 percent, down from 11 percent in February.
“One plausible reason is the expectation of greater financial risk associated with renters,” wrote NAR researcher Scholastica “Gay” Cororaton in a post on the Economists’ Outlook blog. “The social distancing measures have hit hard certain occupational groups―food service/ hospitality/recreation workers and retail trade workers. These occupation groups are more likely to rent compared to other groups.”
First-time buyers won’t have a glut of low-priced, foreclosed homes to choose from as seen in the wake of the 2008 Housing Crisis. Homeowners who are unable to pay their mortgages due to COVID-19 have been presented with deferral options, allowing them to remain in their homes rather than sell. Approximately 8.4 percent of mortgage loans are now in forbearance, according to the Mortgage Bankers Association.
“In the current health and economic crisis, properties are not being foreclosed,” Cororaton added.
A lack of inventory has also buoyed home prices, even causing them to rise in some markets. While there aren’t many deals to be found, first-time homebuyers can certainly benefit from ultra-low mortgage rates and decreased competition from cash-heavy investors.