Despite the housing market continuing to heat up as economies reopen, the recession driven by the coronavirus pandemic has upended the plans for many first-time buyers eager to invest in a new home.
A survey by Bankrate.com found that 22 million adults put off buying a home as a direct result of the national crisis. Of those who delayed purchasing real estate, more than three in five potential buyers (62%) postponed for six months or more, including 20% who have delayed house hunting indefinitely.
“The downturn is obviously delaying key financial decisions and actions on the part of a broad range of individuals,” said Mark Hamrick, Bankrate.com senior economic analyst, noting that buying a house is one of the most expensive purchases most people make. He said some would-be buyers may have been economically harmed from the downturn or have a higher degree of caution because of it.
“Our survey is finding that of the 9% of those who are delaying an economic-related decision of some kind fall into this group of delaying a home purchase,” said Hamrick. “I think that it’s understandable, but at the same time as we see mortgage interest rates at record low levels, it’s obviously a certain segment of society that is striking while the interest rate iron is hot. There is a certain segment of the population that is compelled to buy a home because of the perceived and indeed real benefit of being able to take advantage of low financing costs.”
Many young adults are feeling the financial pressure of job losses. The survey found that younger individuals are more likely than older ones to delay purchasing a home. Hamrick said, “There are a variety of reasons we can attach to that, but I think that number one is that we’ve seen from the economic data that younger workers have higher rates of unemployment, for example, than their older counterparts.”
Generation Z (ages 18 to 23) and Millennials (ages 24 to 39) were twice as likely as their elders (ages 40-plus) to delay a major milestone (52% of those ages 18 to 39 versus 26% of elders) including purchasing a home (14% of those ages 18 to 39 versus 5% of elders).
Nearly 1.5 million Americans filed for initial unemployment benefits in the week ending June 20. “Among those often adversely affected by the economic downturn are younger Americans, many of whom are just starting out in their careers,” said Hamrick. “As result of these setbacks, they’ll spend years trying to make up lost income and career opportunity.”
He added, “There’s no doubt the downturn is exacerbating income inequality and wealth inequality. Those are obviously two different things, but they are related. And both of those are key in this case on restraining the ability to purchase a home.”
A big challenge for many would-be buyers is the low inventory of available homes, especially in markets where the competition is already fierce.
Hamrick said, “That is obviously key, but that wouldn’t necessarily lead someone to decide not to purchase a home unless they were just in a situation where they could not find the home for purchase that they indeed were looking for. And that could explain some of that, but I think we know that low inventory is regarded as a key restraint with respect to home sales. And that serves to some degree as a dampening impact on the broader economy at a time when growth is obviously severely constrained anyway.”
Some buyers are viewing listings from the comfort of their homes. “Logic would dictate that there are some people that would be just somewhat skittish about venturing into a home that you don’t know what type of precautions that either the homeowner or others have taken,” said Hamrick. “One cannot imagine there are a tremendous number of open houses these days. You could do a sufficient amount of shopping online and then narrow down your choices as opposed to the old days where you would go to 20 homes before you decide to buy one.”
The survey found that many would-be home buyers don’t plan to rush back into the market. About 10% say they will wait six months to a year; 31% say they plan to delay for a year or more; and 20% say their plans are on hold indefinitely.
For many Millennials, homeownership has become an American dream deferred. “It’s not only the destruction of wealth, but it’s the delay or the destruction of dreams,” explained Hamrick. “And whether it’s buying a home or even in some more far-reaching aspect delaying a marriage or delaying having children or less so, buying a car or seeking further education, there’s a whole wide range of impacts that are quite dramatic that a downturn has on individuals. And not only is that heart-breaking, but it has broad implications for the economy. It’s not only a case of the virus causing an impact on lives and livelihoods, but it impacts our lives in other ways that don’t relate to health. Obviously, housing activity is key for the broader economy, and right now it may be one of the more positive impacts that is being seen. The housing market is performing better than other aspects of the economy.”