Are Investors Blocking Homebuyers or Is it Your Parents?

Whether it’s by Baby Boomers or investors, younger would-be homebuyers feel blocked.

If you hoped to buy your first home in 2024 or even in 2025, you may be in the anger stage of your grieving process. It may or may not help you to know you’re part of a large group of frustrated would-be buyers. The share of homes purchased by first-time buyers shrank to just 24% in the National Association of Realtors’ 2024 Profile of Home Buyers and Sellers, down from 32% the previous year.

Other disheartening stats: the average age of all homebuyers went up: First-time buyers now average 38, compared to 35 last year, and repeat buyers are typically 61 this year, compared to 58 last year. In other words, there’s plenty of unhappiness about the housing market to share.

While mortgage rates continue to hover between 6% and 7%, double the record lows of 2021 and early 2022, and home prices continue to climb, another big obstacle for first-time buyers is that there just aren’t any homes for them to buy. So, who’s to blame? And when will it get better?

“Just 2.5% of U.S. homes changed hands this year, the lowest rate in at least 30 years,” says Chen Zhao, an economist with Redfin real estate brokerage. “While the number of homes on the market has increased from a year ago and continues to tick up, there are far fewer homes listed for sale compared to pre-pandemic levels.”

Still, Zhao says, not every market lacks homes for sale.

“The market in Florida has cooled considerably since the pandemic-era housing boom as buyers grapple with much higher home prices and increasing insurance, tax and HOA costs,” she says. “In some pandemic hotspots like Orlando and Tampa, as well as Austin, supply is outpacing demand.”

But in most markets, mortgage rates contribute not only to the lack of affordability, but also to the absence of homes for sale.

“We’re unlikely to see a meaningful increase in inventory in the next few months because as long as rates stay above 6%, the rate lock effect will keep many sellers in place,” Zhao says. “More than half (57%) of homeowners have a mortgage rate below 4%, and 76% have a rate below 5%.”

The “rate lock effect” is that most homeowners who sell a property choose to buy another home rather than rent. Very few people will trade a mortgage rate of 3% to buy a house with a 6.5% loan unless they have to move.

“If rates were to decline, more homeowners would decide to sell, and builders would remain incentivized to build in response to more home-buying demand,” Zhao says. “However, unless there is a recession, mortgage rates are unlikely to fall to levels low enough to unlock most homeowners.”

But the lock-in effect isn’t the only factor that makes buyers feel they don’t have a ghost of a chance to find their dream home. 

Blame Investors

It’s natural to point fingers at investors – after all, Wall Street landlords are the culprit, right? Well, yes and no. Nationally, corporate landlords with more than 1,000 housing units own just 1% of all homes in the U.S. and 4% of all homes that are rented to tenants, according to the Wall Street Journal.

But in some communities investor-owned homes represent 4% to 12% of the local market. Worse, by 2030, MetLife Investment Management estimates that as much as 40% of the rental market may be controlled by institutional investors.

Investor-owned properties are more likely to be owned by “mom-and-pop” buyers who own from one to as many as 10 rental properties. These smaller investors accounted for 67% of investor purchases during the first quarter of 2024, according to Realtor.com 2024 Q1 Investment Report, the highest small-investor share since 2001. Overall, investors – including institutional and smaller buyers – bought 15% of home purchases in the first quarter of 2024, the highest percentage in Realtor.com’s data history (dating to 2001).

“Investors are anticipating that if Trump implements a significant portion of proposed tax cuts and increases on tariffs, and the economy stays strong, rates are likely to remain elevated,” Zhao says. “That’s because big increases on tariffs could be inflationary, and enacting more tax cuts would increase the deficit, pushing rates higher. The Fed won’t want to cut their policy rate in 2025 if these policies seem likely and the economy stays strong.”

That means fingers can be pointed at two factors so far that keep houses out of the hands of first-time buyers: High mortgage rates and investors. But wait, there’s more.

Blame the Boomers

While some Baby Boomers are impacted by the “rate lock effect,” more than half never plan to move at all—so their homes won’t be available to first-time buyers either. A recent study by Clever, a real estate data company, found that just 15% of current Boomer homeowners expect to sell their property in the next five years. And 54% of boomers said they expect to live in their homes for the rest of their lives.

Want to rub more salt in the wound? Most of the Boomers in the survey (64%) bought their first homes for less than $100,000. Less than half (47%) needed a double income to buy to make that first purchase.

The rapid increase in home values adds to the wealth of Boomers, with 65% anticipating a profit of more than $100,000 when they do eventually sell. Another 40% expect to make a profit of at least $200,000.

You might think these Boomers would want that cash, but most of them don’t want to face the cruel world of home buying either, especially if they’re among the 60% in the Clever survey who have a mortgage with a low rate.

Blame Secret Listings

One more issue that contributes to the tough experience of looking for a home: secret listings. While estimates are hard to come by, a relatively small share of homes for sale are invisible to most buyers. Known as pocket listings, off-market listings or office exclusives, these are homes for sale that are kept off the Multiple Listing Service and public-facing sites such as Zillow or Realtor.com.

Generally, these tend to be upper-end homes with sellers who don’t want photos of their home on public websites. Estimates of the number of pocket listings range from less than 2% by Redfin to under 5% by Bright Multiple Listing Service, which operates in six East Coast states and Washington, D.C.

Some of these sellers have good reasons for not wanting their home to be openly marketed, such as an ill parent at home or young children whose lives they don’t want to disrupt with frequent buyer tours. In rare instances, the owners are celebrities who particularly value their privacy.

But the only way for buyers to know about and of these properties is through individualized marketing by the seller’s agent, such as an email touting an “exclusive” listing or if their buyer’s agent happens to work for the same brokerage as the listing agent. This may not be a huge contributor to the difficulty finding homes for sale, but it’s one more obstacle in some markets.

Relief May Come from Builders and Someday … Sellers

To meet demand for housing, newly built homes have been an increasingly large share of home purchases. During the first quarter of 2024, one-third of homes for sale were newly built, close to the record high of 34.5% in the first quarter of 2022, according to Redfin real estate data.

“Builders have stepped into the gap in existing homes providing some much-needed inventory,” Zhao said. “Newly built homes made up 28% of single-family homes for sale nationwide in the third quarter.”

Zhao anticipates that new homes will continue to provide inventory next year, despite a recent slow-down in single-family starts, which count homes that are now under construction. High interest rates constrain construction and drive up costs for builders, Zhao explained.

She’s slightly optimistic that as time goes on, more homeowners will start to list their homes for sale.

“Some people who may have been on the fence due to rates will have no choice but to move due to life circumstances,” Zhao says. “Consumers have had to adjust their expectations. After facing rates over 7%, any dip into the low 6s now might start to look like a decent option. And many folks will have built up enough home equity that they’re able to overcome the burden of higher rates and prices. But we don’t expect rates to come down much next year, so the rate lock effect will persist for most.”

One more bright spot: new townhouses. Townhouse construction was 18% of single-family home construction in the third quarter of 2024, the highest level since the data was tracked, according to the National Association of Home Builders.

Townhouse construction was also 20% higher for the four quarters from the end of 2023 through the third quarter of 2024 compared to the same period the previous year. This may not sound like much, but for many buyers, a townhouse is an affordable solution that is far more likely to be sustainably built than an older resale house.