Every month, the National Association of REALTORS® conducts a monthly survey of its members about their monthly transactions and their outlook in the next 12 months. NAR’s April 2020 Realtors® Confidence Index (RCI) Survey shows the effect of coronavirus social distancing measures on the housing market. Here are five trends based on the latest April 2020 data:
Rising share of first-time buyers as investor buyers retreat
- The negative economic impact of social distancing measures has shifted the mix of homebuyers. Investor buyers have retreated, while the share of first-time buyers has increased. The share of first-time buyers rose to 36% in April 2020, up from 32% one year ago.
- Meanwhile, sales for investment rental or vacation use declined to 10%. The share of purchases for investment rental dropped from 11% in February to 6% in April 2020.
- With fewer investor buyers, cash sales decreased to 15% of existing home purchases, down from 20% one year ago.
- Homebuyers are facing less competition from investors, and they are also benefiting from low mortgage rates. In April 2020, the 30-year fixed mortgage rate fell to a record low of 3.3%. The estimated monthly mortgage payment on a home purchased at the median price of $286,800 with a 10% downpayment on a 30-year fixed loan1 was $1,131, just $90 more than the median rent of 1,041 (as of 2020 Q1).
- What might explain why potential investor buyers are staying on the sidelines? One plausible reason is the expectation of greater financial risk associated with renters. The social distancing measures have hit hard certain occupational groups―food service/ hospitality/recreation workers and retail trade workers. These occupation groups are more likely to rent compared to other groups. In 2020 Q1, the national US homeownership rate of 65.3%, while only 51% of food service workers were homeowners.2
- Will investors purchase many single-family properties as they did during the Great Recession? Not likely because during the Great Recession, there was a wave of foreclosures and the properties were purchase by investors. In the current health and economic crisis, properties are not being foreclosed, though 8% of mortgages, or 4 million properties, are under forbearance. FHFA announced last May 13 a payment deferral option that allows homebuyers to pay off the missed payments when the house is sold, refinanced, or at the end of the loan term, making the current mortgage payment to remain affordable.
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