As we look forward to recognizing National Homeownership Month this year (June 2021), we cannot ignore the issues that plague potential first-time homebuyers across the country. First-time homebuyers of modest means who need a mortgage to purchase a home face stiff competition from cash buyers and well-funded investors in the current market and are being blocked from achieving homeownership in many ways.   The National Association of Realtors reported in April 2021 that 25% of all home sales were all-cash deals, which has increased from 15% reported in 2020. Investors and cash buyers are pushing consumers with a modest income and owner-occupant buyers out of the market.  This disproportionately impacts buyers of color and first-time homebuyers.

By purchasing moderately priced homes through all-cash deals, buyers are artificially inflating the real estate market and aiding in gentrification in many neighborhoods across the country.  Investors are also turning owner-occupied single-family homes into non-owner-occupied rentals which diminish the sense of community many first-time homebuyers look for when seeking their dream home.  These issues are hitting all over the U.S. in both rural and urban areas.

Housing counselors and advocates for affordable housing began raising the alarm about this issue in early 2020.  Real estate agents were telling homebuyers to waive property inspections and even appraisal contingencies to be competitive.  Buyers were told that cash offers with quick turnaround were beating out their offers (sometimes even for lower amounts).  Private equity companies were bidding up single-family home prices to switch homes to long-term rentals – fueled by Wall Street investors.

On behalf of American for Financial Reform, National Housing Resource Center (NHRC) convened a working group that identified five specific areas to address:

  • Incentives for selling to first-time buyers/owner-occupants
  • Amassing capital to assist homebuyers
  • Identifying Infrastructure legislation, where programs prioritizing owner-occupant homeownership can be added
  • First look programs, where first time homebuyers and nonprofits can be first in line to make offers on homes
  • Shared equity and community land trust programs to lock in long term affordability

To further develop these areas of discussion, workgroups were created with several key housing leaders from across the country who all helped in identifying possible resolutions to these key issues that hinder first-time homeownership. Here we found that there were a few common, overarching themes:

  1. Available funds for down payment assistance need to be increased and made easier to access for low and moderate-income and buyers of color.
  2. HOME, CDBG, and the Capital Magnet Fund need improvements to address the current needs. A list of recommendations can be found here:
  3. Non-profits need more capital to be competitive in the current market.
  4. Incentives are needed to sell the first-time buyers/owner-occupants and disincentives to discourage cash buyers and investors.

Real Estate agents promote cash buyers and investors over owner-occupant homebuyers, because of the quick turn-around time for their commission The Infrastructure Legislation work group pointed to using local ordinances to discourage investors from buying up properties.  Two ordinances mentioned are in Denver and New York City. Statewide legislation is also a possibility, similar to one that exists in California. Lastly, there is proposed legislation that would have a national impact- Restoring Communities Left Behind Act.

The problems first-time buyers are encountering are likely to continue for the foreseeable future.  We urge first-time buyers to engage with HUD-approved housing counseling agencies BEFORE they seek preapproval from a mortgage lender. A HUD-certified housing counselor can ensure that everything is in order so when an offer is made, things can move as quickly as possible.

Do you have examples of these problems in your market?  In an effort to address this problem, it would be helpful to have specific examples of how consumers are being impacted.  Any information is useful, please use this link to provide your stories about this problem: