Home National housing Despite low mortgage rates, the US real estate market is keeping many first-time buyers on the sidelines

Despite low mortgage rates, the US real estate market is keeping many first-time buyers on the sidelines


There has been a rebound in home purchase demand in recent weeks, as evidenced by data on mortgage applications. But first-time buyers are not behind this wave.

The latest Mortgage Bankers Association data, for the week ending Nov. 26, showed overall mortgage applications fell 7.2% on a weekly basis. But mortgage applications to buy homes were up 5.1% week-over-week, building on the 4.7% rise the week before.

Overall, in November, home mortgage applications rose 7% in November, according to an analysis by Joshua Shapiro, chief US economist at MFR Inc. September. But digging deeper into the data, it’s clear that not all buyers are coming back to the market en masse in similar numbers.

“As home prices continue to appreciate at double-digit rates, buyers of newer, more expensive homes continue to dominate buying activity.”

– Joel Kan, associate vice president of economic and industrial forecasting for the Mortgage Bankers Association

“While home price appreciation continues at double-digit pace, buyers of newer and more expensive homes continue to dominate buying activity, while the share of first-time buyers remains depressed,” Joel Kan, associate vice president of economic and industrial forecasting. for the Mortgage Bankers Association, said in the trade group’s latest report.

Evidence of this can be seen in a number of data points, including the share of mortgage applications backed by the Federal Housing Administration. FHA loans can be a useful indicator of demand from first-time buyers, as they require smaller down payments and lower minimum credit scores than loans guaranteed by Fannie Mae FNMA,
and Freddie Mac FMCC,

In the most recent week, FHA loans accounted for just 9.4% of overall purchase loan applications, up from 10.2% in the same week in 2020.

The number of first-time buyers increased last year

Over the past year, the share of first-time home buyers has actually increased, according to recent data from the National Association of Realtors, from 31% to 34%. Despite the increase, the figure remained well below the historic standard of 40%.

And the first-time buyers who have succeeded in taking this step have done so despite many obstacles. “This year has faced several headwinds for many of them,” said George Ratiu, director of economic research at Realtor.com.

“The first part of 2021 saw an overheated market, in which the demand for housing accelerated by the pandemic rushed into a market starved of stocks, due to more than a decade of under construction,” he said. -he adds. As of mid-2021, there was a shortage of around 5.2 million homes, according to analysis from Realtor.com.

“Even with low mortgage rates, many first-time buyers struggled to compete with regular buyers. “

– George Ratiu, Head of Economic Research at Realtor.com

“Even with low mortgage rates, many first-time homebuyers have found it difficult to compete with repeat buyers bringing equity from a previous home, or other buyers taking advantage of all-cash offers,” Ratiu said.

So far this fall, the housing market has cooled off from the breakneck pace of early 2021, while maintaining a higher rate of home sales than is typical for this time of year. But inflation has dented the portfolios of potential buyers, especially with regard to the rising cost of rent. According to the National Association of Realtors, 73% of first-time buyers in the past year were previously renters.

What’s more, mortgage rates have surpassed ultra-low levels seen in early 2021, and most economists expect them to rise as the Federal Reserve eases its pandemic-related stimulus measures.

“Millennials are in the market, but it’s mostly those with larger budgets who are successful in buying a home. business at the Mortgage Bankers Association.

The success of first-time buyers may depend on improving the inventory situation. Ratiu said more homeowners are expected to list their homes in the coming months, which will give buyers more options and curb the high rate of home price growth. If this expectation does not materialize, success may reflect buyers’ access to financial assistance.

According to the National Association of Real Estate Agents, between 2020 and 2021, more than one in four first-time buyers used a gift or loan from friends or family for their down payment.