This article is part of our 2023 Real Estate Market Forecast Series. After the series ends, join us on May 30 for the. Bringing together some of the best housing economists and researchers, the event will provide an in-depth look at the top predictions for this year, along with a panel discussion on how this insight applies to your business. The event is exclusive to and you can .
the monthlyit is an essential measure of what real estate professionals see in their local markets and how the market evolves on a monthly basis. He National Association of Realtors Research Group has produced the index since 2008, a time of turbulence in the housing market.
One of those measures is who is entering the market. Since October 2022, the share of homebuyers buying their home without a mortgage has been more than a quarter of the market. Participation is compiled monthly in the Real Estate Agent Confidence Index and includes buyers who have purchased primary homes, vacation homes, and investors.
These cash-only homebuyers happily avoid higher mortgage interest rates, which touched 7% in the fall of 2022 before dropping to the current rate of 6.28%. While the spring of 2022 saw a similar proportion of all-cash homebuyers, you need to look back to 2014 before you see similar proportions.
Back then, mortgage interest rates were in the low 4% range. In the months leading up to the COVID-19 pandemic, the share of cash buyers remained in the teens. While mortgage rates may be one component, they don’t tell the whole story. So what happened and who is paying all cash for the houses?
One factor at play is the multi-offering scenarios that took place during the COVID-19 pandemic. Homebuyers placed competitive offers on homes as inventory became increasingly difficult to find. In March 2022, sellers received an average of.
Today, the average is 2.7 offers. Because buyers wanted to find the perfect property, before interest rates rose, they were willing to offer sellers all the cash so their offer wouldn’t be contingent on financing.
Besides,locations in low-density areas, allowing them to buy a home with all cash, if they had home equity from their previous ownership. Thus, the typical homeowner, who owned his house for a decade, had more than to make an exchange.
The share of non-primary residence buyers is now 18% from a peak of 22% in January 2022. At that time, home inventory fell to record lows, making the environment favorable for investors. Investors joined the market to own properties as short or long-term rentals, or to flip the house.
As these all-cash and non-primary buyers are finding success in today’s real estate market, what is noticeably missing are first-time homebuyers. Unfortunately, the first-time buyer share remained subdued at just 27% last month. While not the maximum seen during the 2010 First-Time Homebuyer Tax Credit, it’s also not the historic 40% norm seen in the annual report..
In particular, during the time period of the first-time homebuyer tax credit, there was significantly more inventory than you see today. Unfortunately, the hope of seeing more first-time buyers on the market this year due to less competition has yet to materialize, as higher mortgage interest rates have suppressed the proportion of people who can afford to buy a home.
First-time homebuyers today need more home inventory to improve affordability. Low 3% mortgage interest rates will not be seen any time in the near future. For buyers to enter the market comfortably and sustainably, new construction, office conversion, and the reinvention of existing spaces, such as empty schools, could be the key.
This column does not necessarily reflect the opinion of the HousingWire editorial department and its owners.
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Dr. Jessica Lautz in
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