A strong stock market and high employment has resulted in a booming economy for the past few quarters, which has also led to an increase in demand for homes. According to Lawrence Yun, chief economist for the National Association of Realtors, “Move-up buyers with considerable down payments and those with cash made up a bulk of the sales activity last month.” While a greater supply of upper-end homes is great news for buyers looking to upgrade their current home, inventory issues elsewhere continue for first-time buyers.
First-Time Buyers Priced Out of the Market
More and more first-time buyers are finding themselves priced out of the market due to fewer lower-priced homes on the market and home prices appreciating rapidly in many regions of the country. Mortgage rates are expected to continue to rise next year, severely impacting home affordability. According to Yun, “The increase in homebuilder optimism must translate to significantly more new construction in 2018 to help ease these acute inventory shortages.”
Who Is Buying?
With the shortage of lower-priced homes on the market, it’s not surprising that first-time buyers accounted for only 29% of sales in November 2017, down from 32% in both October 2017 and November 2016. Over the whole of 2017, first-time buyers represented only 34% of total home purchases.
On another front, 22% of all sales in November 2017 were case, up from 20% in October 2017 and 21% in November 2016. The current percentage matches the highest market share since May 2017. Most cash sales are made by individual investors and account for 14% of total transactions, up from 13% in October 2017 (but consistent from a year ago). Yun adds, “The elevated presence of investors paying in cash continues to add a layer of frustration to the supply and affordability headwinds aspiring first-time buyers are experiencing.”
First-time buyer demand is expected to continue rising in the coming year, thanks to a healthy job market and rising wages. These buyers, however, will not be able to get their foot in the door of the market unless there is an increase in the inventory of smaller, affordable homes on the market.
Strong Sales
Existing-home sales increased for the third month in a row in November 2017, when sales reached 5.81 million. This is an increase of 5.6% from October 2016, and an increase of 3.8% from the same time in 2016. Sales haven’t been this strong in almost eleven years; according to NAR, the last time sales set a pace this rapid was December 2006, with 6.42 million existing homes sold. Every region, excluding the West, posted an increase in sales activity in November 2017.