Are your first-time homebuyers slowly unraveling in the choppy headwinds of our current market? They (and you) are not alone. Everyone talking about residential real estate is saying the same thing: We’ve never seen anything like this. Not even the wild ’70s inflation, the astronomical interest rates of the ’80s, or the housing crash of the aughts have prepared us for the current market.
But when we start to break it down, we can get some insight into what’s happening now, find some silver lining, and help our first-time homebuyers. Because let’s face it: They’re probably even more frustrated than we are.
Where Are We & How We Got Here: Spring 2023 Edition
Inventory
It’s not just you. There is nothing for sale. Homesellers are scarce and first-time homebuyers are struggling to find available properties. In fact, inventory has dropped 25% since July 2022 and continues to hover at the bottom of that cliff it fell off, as demonstrated by the chart below:
Existing home sales are down 2.4% month over month, which is especially troubling in the heart of the traditionally bustling springtime market. It’s also worth noting that the national supply of single-family homes for sale has dipped below two months, which is just bananas when you consider the norm is around a six month’s supply.
So, what’s going on? Inventory is low for a number of reasons:
- Developers pumped the brakes on new builds during COVID and then again when mortgage rates skyrocketed and every talking head and editorialist recommended bracing for recession.
- Homeowners who actually want to sell look around the market and think, “Even if I could sell, where would I go? There’s nothing for me to move into!”
- Homeowners who’ve locked in low mortgage rates are further disincentivized, despairing at giving them up for rates that could be twice as high.
- Investors and cash buyers are still out there scooping up properties, keeping prices high.
This makes it incredibly frustrating for first-time buyers (and their agents). They’ve been waiting, planning, and saving—and they’re looking to you to find their dream home in the vast empty wasteland that is your current MLS.
Prices
As soon as mortgage rates began to rise, many expected home prices to come down. However, that pesky law of supply and demand is keeping prices high. Because inventory is so drastically low, sellers can still ask, and often get, top-dollar for their property—not early-2022 top-dollar, but still up there.
Note that the graph below isn’t showing a median price increase over 10, 20, or 30 years—this is a median price increase of more than $100,000 in a span of four short years.
To add a little more context, let’s look at the last quarter of 2021 versus the last quarter of 2022 for first-time homebuyers, according to the National Association of Realtors’ (NAR’s) affordability index:
| Starter Home Price | |||
| Effective Interest Rate | |||
| Monthly Payment | |||
| Qualifying Income |
All of this paints a grim financial portrait for first-time homebuyers (and their agents).
Mortgage Rates
Yes, mortgage rates shot up in quick succession last year. And yes, at the time of this writing, the Fed just raised it again a quarter of a point. Markets responded as predicted, and we are seeing mortgage application rates sink (after some significant spikes in the past few months).
As an agent, you know how these rates impact your clients’ buying power. First-time homebuyers are especially hit hard by these cold numbers because they don’t have a home to sell that can fuel their next purchase. Let’s look at what a typical buyer could afford with a 2020 mortgage rate versus a 2023 rate:
This math plays out in stunning fashion when you examine loans on the macro level. When homebuyers are looking at the total owed over the life of their loan, they are faced with a difference of hundreds of thousands of dollars today versus last year:
So now, not only do buyers have very limited options with the current basement-floor-level inventories, but the houses out there are expensive—and their dollar doesn’t go nearly as far.
How It All Adds Up
So as you can tell, working with first-time homebuyers right now is no picnic. They’re emotional and drained from a fiery-hot market that forced them to drop contingencies and promise to name their baby after the homeseller—and still not get their offers accepted. Agents are frazzled from trying to compete with the 56 other offers on every table. But no one is sure that what we’re looking at right now is that much better.
The market of spring 2023 might make us all start worrying: Should I be looking for a new career?
The answer is an immediate, and resounding, no. That’s because there is good news on the horizon, as well as tremendous opportunity for you to shine as an agent and help your first-time homebuyers become first-time homeowners.
So put down that brochure about the latest multilevel marketing business, maybe order yourself another margarita, and buckle up. While things might be a little bumpy for a little longer, we see the seas calming and normalcy on the horizon.
Wait, So There’s Hope?
Absolutely. In fact, there’s a lot of hope, and not just because we’ve had a second margarita. Because the numbers say so.
Let’s start with mortgage rates. This latest interest rate increase of a quarter of a point (May 3) was expected. So much so, that this increase is already priced into current rates.
Not only that, but there is real confidence that the Fed is ready to pause interest rate hikes in response to the recent bank failures, debt ceiling negotiations, and cooling inflation rates. In the announcement of this most recent increase, Fed Chairman Jerome Powell said, “We’re closer, or maybe even there,” meaning they could now pause their policy of steady rate increases, which were part of an effort to bring inflation down. This is significant, especially after going through a staggeringly rapid 5-percentage-point rise over the past 14 months.
But now, everyone from Compass U.S. Region President Neda Navab to NAR is publicly predicting rates will soon enter a period of relative stability, probably settling around 6% toward the end of the year.
Additionally, there are positive signs around inventory. This month’s Census Bureau data shows that house completions in March 2023 were 12.9% higher than March 2022, meaning 1,542,000 new homes were finished.
Individual states and cities are rolling out and revamping first-time homebuyer loan programs, with California’s getting lots of attention. So much attention that it had to pause its popular program, having doled out all of its $300 million in two weeks. But this idea is catching on, as Detroit follows suit with its own down payment aid program.
And, no matter how dire the situation feels, the cycle of life continues: People get transferred, inherit property, get divorced, need a different school district, upsize, and downsize. Opportunities are there, even if they are fewer than normal.
How to Help First-time Homebuyers
Tough times offer opportunities to shine. Lesser agents are crying in their car or breaking things, but you’re rising to the occasion (it’s OK if that’s after some tears and shattered stemware). Here are some ways to help you help your first-time homebuyers weather these stormy waves.
Stay Empathetic
In the exhaustion of searching for a needle in a haystack, it could be easy to lose sight of the fact that none of this is anyone’s fault. It’s not the buyer’s fault that a pandemic slowed down new builds and sped up buying. The chaotic rumblings of economic machinery are out of all of our hands. So try and stave off frustration with your clients and focus on their struggle: actual people with real dreams, real budget constrictions, and real stress.
Don’t worry: You can still be frustrated with them when they let their kids swim in the swimming pool at a showing or insist their dad be there to oversee the inspection.
Network Like Crazy
In markets like these, it’s not what you know but who you know. Keeping your ear to the ground. Meeting new agents and maintaining relationships with old-friend agents will pay off in the long run.
Building relationships within your professional community might lead to a pocket listing, heads-up on a distressed property, or even a back channel with sellers weighing offers (when ethically appropriate, of course).
Be Ready to Move Fast
Buyers have more time than they did at the height of the seller’s market; properties are staying on the market slightly longer and getting slightly fewer offers, but you still need to be diligent. Your clients are looking for a unicorn, and so are all the other first-time homebuyers out there.
Make sure all of your clients’ financing documents are in order, stay in close contact, and schedule showings as soon as a property pops up. Getting in early gives potentially nervous buyers more time to think.
Ask the Right Questions
While you can’t roll back mortgage rates, you can help your clients find the best deals out there. Get to know the hungry mortgage brokers in your market, the ones who are willing to get creative and make deals happen. We’ve created a resource to help your clients navigate the complexities of the current mortgage market—and ask the questions that could save them money and open up possibilities.
Take Care of Yourself
Working with first-time homebuyers in this market is stressful on everyone—especially you, the agent. You want to solve all their problems and clear the path to a dream home, but so much is out of your control.
Be sure to take care of yourself, take time to recharge, and set boundaries. Increased emotion and frustration can make normally wonderful clients be a bit extra. If a client becomes way too extra, talk to your broker and ask for help. Recently, a good friend and agent had to cut ties with a client who was being impossibly difficult. She lost a commission but gained back some sanity.
Bringing It All Together
Even those of us who’ve been in real estate a long time are navigating these waters warily and with wide-eyed caution. While there aren’t any shortcuts or easy answers, there is hope that the market is slowly normalizing and your first-time homebuyers will get their chance to purchase a home that fits their budget and their dream. Remember that you, as the agent, are the true hero of their real estate story.
Do you have any unique experiences from the current market? Questions? Advice? We’d love to hear from you in the comments below!
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