Fast-rising prices, plenty of competition and a severe shortage of homes on the market. Seems like an awful time for first-time home buyers to enter the market. Well, think again.
Record-low mortgage rates, the ability to work from home for many employees, and impressive stock gains are helping open the door to homeownership, especially for millennials. Despite a critical shortage of homes on the market and record-setting prices in several regions, California was the leader in first-time buyers — and not necessarily where you may think.
Eight of the 20 counties with the largest percentage point increases of first-time buyers were in California in 2020, including four where those new homeowners paid at least $1 million — and often a lot more.
What’s a million-plus for your first home?
Marin County topped the national list, with 35% of buyers being first-time owners, compared to 22% in 2019 (up 13 percentage points). And here is the head-turner: first-time buyers in Marin County paid an average of $1.31 million.
Half of buyers in nearby Alameda County were first-timers, compared to 38% in 2019, the second-largest percentage point gain in the U.S. Those first-time buyers paid an average of $944,388.
San Mateo County had the third-largest percentage point increase of first-time buyers in the nation, from 28% in 2019 to 40% last year, according to CoreLogic. First-time buyers in the county paid about $1.41 million.
The eight California counties with the percentage of first-time homebuyers, the percentage-point increase compared to 2019 and the average price they paid:
However, only one California county cracked the top 20 list with the largest percentage of first-time buyers in 2020. Almost three of every (58%) five buyers were first-time homeowners in Imperial County, the border county east of San Diego where farming is a leading industry. The Bronx, New York, had the largest percentage of first-time buyers in the nation at 71%.
Feature photo of Sausalito in Marin County. Marcuspon/Adobe Stock
Competition is tough in
sprint-like housing market
Time waits for few buyers.
More than half of homes on the market (52%) nationwide entered escrow within two weeks, creating a bit of a challenge for home-sellers — and likely pausing some homes from landing on the market, according to Redfin. Several markets in California, including Sacramento, are reporting sales within nine days.
The California Association of Realtors reports the average home on the market in the state entered escrow in 11 days in December, just two days more than the previous record set in November 2020.
You get the idea, and feel the need for speed.
And fast-moving homes coupled with a limited supply of listings — down 47% in December from a year ago, the seventh straight month of 40%-plus declines — are creating a ton of competition for properties.
Move fast and carry a big check
Bidding wars are just part of the deal, housing experts say.
Four of the 11th most-competitive housing markets in the nation were in California in January, including second- and third-place San Diego and San Francisco, where 79% and 77% of homes had multiple offers, respectively. (Salt Lake City topped the national list at 90%.)
Two of every three deals in the Sacramento region — often considered the hottest housing market in the state and possibly the nation — had multiple offers, the eighth-largest percentage. Los Angeles finished at No. 11, with 62% of homes fetching multiple offers.
‘Homeowners are reluctant to sell’
The blistering pace and competition are causing some serious headaches for homebuyers — and home-sellers, says Redfin chief economist Daryl Fairweather.
“There is a serious lack of new listings, and although prices are through the roof, homeowners are reluctant to sell, because it’s so hard to buy again unless you are moving to a less expensive area where you can afford to outbid other buyers,” Fairweather says. “With so few new listings hitting the market, I expect bidding wars to become more common and involve even more potential buyers as we head into the spring homebuying season.”
Fairweather advises buyers to get pre-approved for a mortgage and see homes as soon as they land on the market. Plus, buyers should discuss with their real estate agent how much a home is worth “so you can go into a bidding war with your strongest offer,” she says. “But know when to back away if the price escalates more than you’re willing to pay.”
And, of course, better forget the idea of negotiating for a lower price. The average home in California sold for slightly more than the listing price in December, according to CAR.
Biden administration extends foreclosure ban to June 30
Biden also expanded mortgage payment forbearance, which allows borrowers to pause or reduce mortgage payments, until June 30. Previously, both foreclosures and forbearances were set to expire March 31.
Vaccine rollout will help the ailing economy and ‘struggling homeowners’
The Mortgage Bankers Association (MBA) applauded the decision and “believes it provides necessary assistance for homeowners and important guidance for mortgage servicers,” says Bob Broeksmit, president and CEO of MBA. “We will continue to work with the administration, Congress and other stakeholders on aligning policies and initiatives that will help consumers during the pandemic.”
About 2.6 million homeowners are in forbearance, about 5.3% of mortgages in the nation, according to the MBA. It’s the lowest level since April 5, 2020, when the Covid lockdown was in place and much uncertainty around the pandemic remained.
“MBA expects the rollout of the vaccines to boost economic growth through the course of the year, leading to a stronger job market and a greater ability for more struggling homeowners to get back on their feet,” says Mike Fratantoni, senior vice president and chief economist of MBA. “We do believe that additional support is needed until they have regained their jobs and incomes.”
‘The number of foreclosures we’re seeing right now doesn’t reflect market reality’
When Covid arrived in late-winter 2020, some housing experts believed foreclosures would eventually follow, as homeowners faced financial challenges, including cuts in pay or a job loss. But aggressive actions by the federal government — including the ban on foreclosures, embracing forbearance efforts and stimulus payments — have largely tabled those worries.
Nationwide, foreclosures were down 80% in January compared to a year ago, according to ATTOM Data Solutions. And almost half of California homeowners with a mortgage are considered equity rich (fourth item in CHN Blog) — owe less than 50% of the current value of their home. So, if hard-hit homeowners experience a tough time, they could sell their homes for a rather significant profit.
“The moratorium and CARES Act mortgage forbearance program has effectively printed millions of seriously delinquent loans from entering the foreclosure process,” says Rick Sharga, executive vice president of RealtyTrac. “But it’s important to remember that the number of foreclosures we’re seeing right now doesn’t reflect market reality — and that’s something we’ll need to deal with once these government programs expire.”