First Time Home Buying Surges, Supply Dwindles
Updated: Oct 23, 2022
Buying a home for the first time is a monumental period of our lives, from learning the responsibilities involved to planning those DIY projects. Many homebuyers new to the process are finding that purchasing a home in the current market isn’t as simple as submitting an offer Even experienced buyers are noticing the market conditions! With Millennials entering the prime period for buying their first home, historically low interest rates, & an overall low supply of homes for sale, we have seen the perfect combination of factors to create a seller’s market. Multiple offers & loosened contingencies have become common in today’s real estate world. So, what are the stats & how have they contributed?
Increased Population Entering Housing Market
As Millennials (Generation Y) are entering the market for purchasing their first home, experts are taking note of the supply of homes for sale. In 2020, 4.7 million Millennials reached 30 years old. As they reach 30, they are settling into better paying job opportunities & have had the chance to establish some credit for securing a mortgage (which is why it is considered the age at which most will start looking to purchase their first home). Currently, the numbers are even higher with 4.8 million people turning 30 in 2021. Since a solid year in the real estate market will see 6.0 million homes sold, it’s fair to say that Generation Y is comprising a significant portion of the buyer market. The thing is those numbers are just beginning to reach the peak with 4.8 million people per year turning 30 years old in 2022, 2023, and 2024.
Mortgage Rates Low, Buyers Leveraging Financials
A major factor in the market is the historically low rates seen in late 2020 & the first half of 2021. As the economy bounced back from a brief recession in early 2020 (due in part to the COVID pandemic), the housing market rebounded in a very strong manner. This was attributed to the favorable monetary policies, favorable demographics, & the working from home movement solidifying its place in our culture. The incredible thing about this period of time was that in March of 2020 the average 30-year fixed rate was 3.65% and by January 7th, 2021 the rate had hit an all-time low of 2.65%! So, what did that mean for buyers? Well, it meant they had more leverage financially. Buyers who weren’t quite ready to enter the market found themselves in a financial position to move & even allowed others to purchase more expensive homes.
Supply Dwindles from Supply Chain Conditions
At the same time as low rates & the higher buyer numbers, the market has seen a downturn in newly listed homes as well. National inventory of active listings decreased by 22.2% from the previous year (through September) while total inventory including pending listings dropped by 12.6%. There are 3.9% fewer newly listed homes (national) than the year prior, which is a significant difference from the 2017-2019 levels (down 12.6%). Another factor in the decreased supply of homes for sale is the average time on the market. September showed a national average of 43 days on the market, down 11 days from September 2020 & 23 days from September 2019. With the COVID pandemic, the real estate market has also seen a slow down in new construction home completion. Between increased health regulations & supply chain issues, home builders in many markets struggled to complete construction at normal paces. The full September 2021 Monthly Housing Market Trends Report from Realtor.com provides additional details about current inventory, additional housing market statistics, & pricing trends.
Local News: Realtor.com currently has 46 total homes listed for sale in West St. Paul, Minnesota (including pending, contingent, all residential property types).
First-Time Homebuyer Act of 2021
In April 2021, U.S. lawmakers introduced the First-Time Homebuyer Act of 2021 in which the IRS tax code would be revised. The revision would grant first-time homebuyers up to $15,000 in federal tax credits. If passed, this program would apply to any home purchased after January 1, 2021, with no specified end date to the program. However, there are particular criteria to be eligible for the tax credit including being a first-time home buyer, not exceeding income limitations, and purchasing a primary residence from a non-relative. The tax credit would be applied automatically to those who file their taxes (we highly recommend that). It is important to note that the First-Time Homebuyer Act of 2021 is still a bill & is not yet law, we included it in this article for information purposes only.
Here you can review the First-Time Homebuyer Act of 2021 with your agent or financial advisor for insight on the current status of the bill.
Continued Buyer Surge & Supply Issues Expected Through 2024
As the number of Millennials entering the housing market continues to fuel a surge in buyers, current market conditions are continuing to cause low inventory levels as there aren’t enough sellers listing homes to meet demand. Factor in historically low rates and the market will continue to see median price increases, multiple offers (potentially bidding wars), & a decreased focus on matching all desired features or buyers having contingencies. As we enter the fourth quarter of 2021, mortgage rates & listing prices have stabilized for the most part. However, the supply vs. demand conversation will continue to be a topic for the real estate market throughout 2024 as Millennials continue to enter the market & supply shows few signs of immediate improvement.
First Time Home Buyer Surge Sources:
Realtor.com: First Time Home Buyers Housing 2021
Homebuyer.com: First Time Home Buyer Tax Credit
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