Why this mortgage expert predicts a hard year for first-time buyers

by David Kitai21 Dec 2020

While brokers and originators prepare to fill their pipeline with first-time buyers in 2021, one mortgage and real estate analyst believes that in the new year, the homebuying experience for first-timers will be competitive, frustrating, and expensive. Holden Lewis (pictured), mortgage and real estate expert at NerdWallet, said that going into 2021 mortgage professionals should be aware of the challenges these buyers face and prepare those clients for a cut-throat housing market.

The competitiveness, Lewis said, comes down to simple supply and demand. Despite a huge spike in housing starts, the country is simply underbuilt and meeting housing demand will take years. Demand remains high in a low-rate environment with younger buyers joining the market. In addition, Lewis noted, individual owners seem less likely to sell their homes at the current moment, if for no other reason than having a stranger walk through their home isn’t so appealing anymore. Buyers of all stripes are going to face competition from a whole other kind of buyer, too.

“First-time homebuyers are going to be facing serious competition when they make offers for homes, including competition from investors,” Lewis said. “Because first-time homebuyers tend to buy entry-level homes and right now there are investors out there who want to buy the same types of homes… They’re going to be bidding against people who want to force first-time homebuyers to remain renters.”

Short supply, Lewis said, will be exacerbated by current owners who simply don’t want to play in this market and prefer to hold on to the property they have, rather than face the uncertainty of a 10-bid offering.

While Lewis expects strong housing starts to have some impact by the second half of 2021, he says that for now a reality of short supply, investor competition, and few properties on the resale market will be a reality all homebuyers face.

That bleak picture, in Lewis’s view, represents an opportunity for mortgage professionals to position themselves as a counselor. He said that mortgage pros should try to be the first point of contact, rather than the real estate agent. There’s a case to be made in this market, too, that, due to competition, low rates, and rapid price increases, the feasibility conversation a buyer has with their loan officer is a more important early stage than the wants and needs conversation they might have with their real estate agent.

Lewis says that mortgage pros should serve as educators around FHA and VA loans, which he thinks can be a difference-maker for buyers in this hot market. Prudence and cautious counsel, he stressed, are absolutely key.

“I think that there might be a lot of first-time homebuyers out there who they don’t realize that they might need some more time to build their credit, and maybe more time to save because while they think about the down payment, they’re not thinking so much about the closing costs,” Lewis said. “Mortgage pros should be realistic with the borrower about credit and about their timeline and then stay in touch through that process. If that borrower is going to have to take a few more months to build the savings and build the credit, I think that’s a good start.”