It’s ‘never been harder’ for first-time homebuyers amid soaring rates, sky-high prices, and scarce inventory

April 6, 2022, 12:10 PM UTC

The housing market is having a moment, with homes routinely selling for well over asking in a matter of days, sometimes with multiple all-cash offers.

Mortgage interest rates, which had been falling consistently for two years—including to record lows in 2021—have recently spiked well above pre-pandemic levels. The typical home price has increased 20.3% year-over-year, and inventory continues to be limited.

All of this is terrible news for first-time homebuyers, says Skylar Olsen, principal economist at digital home buying service Tomo. And it’s probably not going to get any easier.

“It’s never been harder to buy a house,” says Olsen, noting that the average length of time homes are listed before they sell has fallen to 18 days. “No matter which way you cut it, a first-time buyer is really struggling.”

Not only are first-time buyers contending with soaring rates and prices, but they don’t have equity to use to make more competitive offers. Rising mortgage rates especially hurt those taking out an FHA loan, a government-backed loan typically for low- and moderate-income first-time buyers. It now takes the typical buyer nine years to save for a 20% down payment on a typical U.S. home, 2.8 years longer than the 2020 norm, per Olsen.

Meanwhile new listings have been falling, as homeowners who might have been planning to downsize before the pandemic were able to refinance at the super-low rates of the past two years, further limiting the historically low supply, says Olsen.

Though there are some indications that the market is starting to cool, spring—typically the busiest buying season—will still be extremely competitive, says Nicole Bachaud, an economist at Zillow. One reason: Rent keeps rising. That makes locking in a consistent monthly mortgage payment more attractive.

“A lot of millennials and older Gen Zs, they’re saying, ‘Oh, the market crashed and my older peers were able to buy; I’ll wait for that to happen,'” Bachaud says. “People are thinking things are going to get better, things will get cheaper, but that’s not the market we’re in. We’re not in a bubble; it’s not going to crash.”

Olsen agrees that it doesn’t make sense for first-time buyers to sit out of the market, no matter how hectic it is, unless they are priced out completely.

“If your goal is to settle down, build community, you find the match that works for you,” she says. “Don’t wait. It is very hard to time the market, and I think that’s the reality of it.”

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