Why First-Time Homebuyers Are Stuck—and What Investors Need to Know Now
Lorene Cowan’s story is becoming all too familiar across America’s biggest cities. At 44, she had hoped to own a home by now, but in New York City, soaring prices have pushed that dream further out of reach. New York’s median home listing price recently topped $829,000, a 3.8% increase year-over-year, marking the highest annual price rise among the Case-Shiller 20-city composite at 7.4%. This affordability crisis is not just a New York problem—it’s a nationwide trend reshaping the housing market and investor strategies alike.
The New Reality: Homeownership Delayed
The median age of first-time homebuyers in the U.S. has climbed to 38, a stark jump from the late 20s in the 1980s, according to the National Association of Realtors (NAR). First-time buyers now represent just 24% of the market—the lowest share on record. Millennials and Gen Z still view homeownership as a key wealth-building milestone, but rising prices, higher mortgage rates, and limited inventory have forced many to delay or abandon that goal.
Bank of America’s Matt Vernon highlights this shift: “The dream is alive, but it’s taking longer.” The interplay of rising home prices and mortgage rates—currently averaging just above 6.5% for a 30-year fixed loan per Freddie Mac—has created a “housing lock-in effect.” Homeowners with low-rate mortgages from the pandemic era are reluctant to sell, further constraining supply and keeping prices elevated.
What Investors and Advisors Must Watch
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Supply Constraints Will Keep Pressure on Prices
Lawrence Yun, NAR’s chief economist, points to undersupply as a critical barrier for first-time buyers. This scarcity isn’t expected to ease soon. New home construction lags behind demand, and existing homeowners are locked into low-rate mortgages, reducing turnover. Investors should anticipate sustained demand for rental properties and consider multifamily housing investments as a hedge against continued affordability challenges. -
Mortgage Rate Volatility Adds Uncertainty
Despite recent dips, mortgage rates remain historically high compared to the pandemic lows. The Federal Reserve’s next moves are uncertain, and mortgage rates are more closely tied to the 10-year Treasury yield than Fed policy. As Ashley Weeks from TD Wealth notes, a Fed rate cut doesn’t guarantee lower mortgage rates. This volatility means timing the market is riskier than ever for homebuyers and investors alike. -
The Waiting Game: Buyer Sentiment and Market Timing
Surveys from Bank of America and Bankrate reveal that roughly 75% of prospective buyers expect prices and rates to fall and are holding off on purchases. Yet, over half say they won’t buy this year regardless of rates. This “wait and see” mentality could delay market recovery or create sudden surges if conditions shift unexpectedly.
Unique Insight: The Rise of “Rentvesting” and Its Investment Implications
A growing trend not often highlighted is “rentvesting”—where buyers purchase homes in more affordable areas while renting in expensive urban centers. This strategy allows them to build equity without sacrificing lifestyle. For investors, this signals opportunities in emerging suburban and exurban markets where demand is rising, but prices remain below overheated metro cores.
For example, cities like Raleigh, North Carolina, and Boise, Idaho, have seen increased buyer interest from those priced out of larger metros. According to Zillow, these markets have experienced double-digit price growth over the past year but remain more accessible than traditional urban hotspots. Investors should monitor these secondary markets for potential growth and rental demand.
What Should Advisors and Investors Do Differently Now?
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Reassess Risk Tolerance and Diversify: With mortgage rates unlikely to return to pandemic lows soon, investors should diversify beyond single-family homes in major metros. Consider multifamily units, real estate investment trusts (REITs), and suburban markets showing strong demographic trends.
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Educate Clients on Market Realities: Many buyers are caught in the “waiting for rates to drop” trap. Advisors need to provide clear guidance on the risks of waiting too long, including potential further price increases and lost equity-building time.
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Leverage Technology and Data Analytics: Utilize advanced market analytics to identify undervalued neighborhoods and emerging markets where “rentvesting” is gaining traction. This data-driven approach can uncover hidden gems before they become mainstream.
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Prepare for Inflation and Interest Rate Shifts: Stay alert to Federal Reserve signals and Treasury yield movements. Even small changes can significantly impact mortgage rates and housing affordability.
What’s Next?
The housing market is at a crossroads. If mortgage rates stabilize or drop modestly, we may see a gradual return of first-time buyers. But if rates climb or supply remains tight, rental demand and alternative homeownership strategies like rentvesting will dominate. For investors, understanding these dynamics—and acting proactively—will be key to navigating the evolving landscape.
Sources like NAR, Freddie Mac, Bank of America, and TD Wealth provide valuable data, but Extreme Investor Network’s unique perspective underscores the importance of looking beyond headline rates and prices. The future of housing affordability—and your investment success—depends on anticipating these nuanced shifts now.
By embracing these insights, investors and advisors can turn today’s housing challenges into tomorrow’s opportunities. Don’t just follow the market—outthink it.
Source: Why home buyers are on the sidelines