First-Time Buyers and LMI Buyers Priced Out of Market
As home sales surge to their highest point in eight months, more and more first-time buyers and low-and-moderate-income buyers are sidelined.
According to the National Association of Realtors, existing home sales surged to an 8-month high in September as inventory levels have improved. Housing demand remains strong and interest rates hover at all-time lows. But inventory remains tight, despite the increase in supply. And so prices continue to increase leaving many would-be homebuyers behind. In fact, the first-time buyer share of market fell to only 28% in September, the lowest it’s been since July 2015. And while inventory has improved, the market is still down 1.46 million units from a 
year ago. Unsold inventory sits at just a 2.4-month supply nationwide.
Tight supply, high demand, and low rates continue to push prices higher. The median sales price for an existing single-family home was $352,800 in September, up 13.3% from a year ago, and marks the 115th consecutive month of year over year price increases.
All cash sales account for 23% of home sales in September; 13% of cash sales were to investors or second-home buyers.
Limited inventory, high prices and competition from investors makes it particularly difficult for first-time buyers and low-to-moderate-income people to purchase a home. Few first-time or LMI buyers have the savings for a down payment and closing costs at today’s prices. And most do not have the cash on hand for an outright purchase. Additionally, many first-time and LMI buyers use FHA financing, making them less attractive to sellers when compared to conventional or cash buyers.
With such limited options for a home purchase, many potential buyers are pushed into rentals. Yet, similar to the shortage of homes for sale, rental units are also historically low, driving prices up. The average rent payment is up over 11% this year reaching a new high of $1,663 for a two-bedroom apartment. Renters are being squeezed even tighter and limited supply means fierce competition for a rental that fits one’s budget.
Nobody says, “When I grow up I want to be a renter.” Inventory has plummeted, prices have skyrocketed—classic supply and demand exacerbated by low interest rates and a global pandemic. Everyone knows we need more options for homeownership. Unless we address our housing and homeownership crisis, the growing wealth gap will only stretch wider.