Move over, first time homebuyers; all-cash investors are first in line

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Published Date 2/22/2022

There exists a double-edged sword when home prices escalate. Sellers are thrilled, able to bank a potful of money. But they may also find the only thing they can do with all of it is rent, move to a less expensive locale, or downsize, because their lack of purchasing power rose with the tide as well. Buyers? There aren’t a lot of upsides to rising home prices except to hope that they will continue to rise past when their own escrows close.

Enter hungry investors. When there are record home prices as well as low inventory, these are the guys who make things hard for first-time homebuyers. And today, according to NPR’s Anthony Vellez and Chris Anthony, numbers show that investors are driving even more people away from homeownership.

Citing the National Association of Realtors’ (NAR) chief economist, Lawrence Yun, ”Investors are coming in and pushing out the first-time buyers.” He goes on to say that the percentage of home sales that went to investors rose to 22% in January, up from 15% a year earlier. At the same time sales to first-time homebuyers fell from 33% a year ago down to 27% in January. Yun recalls how, under more normal conditions, first-time homebuyers would make up about 40% of sales.

Vellez and Anthony explain how there is more than one force at play: “A historic shortage of homes for sale has been pushing prices higher and resulting in multiple bids on many homes. And that has given a huge advantage to investors and wealthy individuals who can afford to offer cash.” They point out how buyers offering cash made up a full 27% of sales in January, up from 19% the year before. And of course, sellers prefer cash offers because they're a sure thing. As a result first-time buyers have little chance of nabbing a home when pitted against cash buyers."

The NAR admits this is troubling, since owning a home has long been the most powerful way most Americans are able to build wealth. "The investors picking up properties at the expense of first-time buyers means that there is less chance for realizing the American dream, particularly among moderate-income families," says Yun.

The 2008 housing market crash and financial crisis resulted in a homebuilding industry that never fully recovered. Yun says the U.S. needs an average of 1.5 million homes to be built every year for supply to keep up with demand, but the U.S. has been below the average for more than a decade. “This decline in construction has led to a severe shortage of single-family homes, condos and rental housing,” he says. And lack of supply always pushes up prices. The NAR says that in January, the median sales price of an existing home in the U.S. rose 15% from the year before to $350,300. Over the course of last year, the typical home went up $50k in value.

While homebuilders are stepping up the pace of construction, it can’t seem to happen fast enough for this situation to change any time soon. "We're moving in the right direction. But I would still say that we are short by 3 or 4 million housing units in America, so we still need to ramp up supply," says Yun.

NPR, TBWS

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