A new type of homebuying competition may soon emerge, as three different types of buyers start looking at the same sliver of housing stock.
Potential homebuyers seeking their next place to live are no strangers to competition, especially in a market where rates feel stuck above 6%, prices hit record highs, and housing supply is hard to come by.
But according to experts, a new type of competition may soon emerge at the bottom of the market, as three different types of buyers start looking at the same sliver of housing stock. And that includes a brand-new buyer segment that likely never expected to be house hunting today.
Which of these three buyers comes out ahead won't just come down to who bids the most—it'll come down to who can close the cleanest, fastest deal.
A new type of competition
One-story, low-maintenance, and modestly priced homes have long been sought after by first-time homebuyers, as well as older people looking to downsize, says Ashley Harris, director of homebuyer education at Neighbors Bank. But from her vantage point, she’s seeing new layers of complexity in the competition.
“It's not like we're short on houses. We've got plenty of big, older homes that cost a fortune to keep up. What we don't have is that smaller, right-sized home that a first-time buyer or somebody downsizing wants. And a lot of that is because builders kind of stopped making them,” she says.
Builders are incentivized to build bigger and nicer homes that cost more money as a way to pad their bottom line, Harris explains. So while there is an overall housing supply crunch across the country, it’s going to be more difficult to address the issue at the bottom of the market.
First-time homebuyers, who are getting older (the median age is now 40, according to the National Association of Realtors®), were already feeling squeezed by affordability, rates, and repeat buyers leveraging their accumulated home equity to make big cash offers. Now, they’re having to contend with all of that, plus a new type of homebuyer who has emerged in recent years.
“It’s people who bought back in 2021, or even before that, who purchased a home they thought they could afford,” Harris says.
These “folks who did everything right” are still being pushed back into the entry-level market by the rising costs of ownership, she says.
This graph shows that by the end of last year, the share of outstanding mortgages with rates above 6% surpassed those below 3%. (Realtor.com) Where this third buyer comes from
If you’re a current homeowner, you might recognize that description. Even if you bought a home with a mortgage at 3%, a confluence of rising costs may be eating away at your affordability.
“We've had sellers tell us the mortgage isn't what's pushing them to move; it's everything else,” says Daniel Amodeo, president of Amo Realty.
He points to Florida as a market where this new pattern stands out: “Between higher insurance costs, HOA fees, and just general maintenance costs, some people are deciding they'd rather own a smaller, less expensive home.”
First, there are property taxes, which are reassessed every few years and based on home values. If you bought a home for $400,000 and it’s now valued at $800,000, get ready to see a massive difference in your tax bill.
Harris says that “property taxes climbed about 30% between 2019 and 2024, and the average single-family bill reached roughly $4,400.”
This can happen even after the market has cooled, due to expiring tax relief, new local tax rates, and other factors.
Insurance is also a well-known source of carrying cost woe. Homeowners policies are skyrocketing even in states and cities that face lower climate risk, as insurers spread that risk through reinsurance across the country.
Taken together, the escrow account that your lender manages to pay for taxes and insurance may suddenly require a higher payment, plus additional cash for last year’s shortfall.
One viral video from last year featured a homeowner whose taxes had been assessed on the land alone, missing the home itself, leaving her with a $23,000 escrow shortfall that nearly doubled her mortgage payment.
Harris calls these escrow leaps "the black ice on this market." She's already seeing accounts climb by $250 to $500 a month in some cases, and expects it to become more common going forward.
Even if you have a fixed mortgage and nothing else has changed, you may still find yourself needing to pay hundreds more dollars a month to stay in your home.
“Somebody who felt totally fine with a $2,500 payment might not feel fine at $3,000 a month,” says Harris. “And now they're looking for something that frees up some of their budget.”
Who is best positioned to win the battle?
Now, some short-changed buyers are seeking to downsize, or resize, alongside older, cash-flush buyers and those who have finally scraped together enough for a down payment.
These homebuyers are reentering the market at a time of higher interest rates, but they are able to make significant offers thanks to the equity in their home. That’s especially helpful if they’re looking at a different market.
“We've seen homeowners in Florida who bought several years ago, when prices were much lower, benefit from appreciation. They're able to sell, relocate to more affordable markets like Central Georgia, and in some cases purchase their next home outright with cash,” says Amodeo.
But every homebuyer segment brings an advantage to the table with them, and those who are seeing this dynamic play out say that the winner isn’t always so clear.
“When these groups compete, the buyer with the strongest overall offer usually wins, not necessarily the one offering the highest price,” says Micahel Kelczewski, a real estate broker and loan officer. “A buyer with conventional financing, a solid down payment, limited contingencies, flexible closing terms, and a reputable lender is often in the strongest position.”
First-time buyers should take heart, because, as Harris says, “they can write the cleanest offer.”
“If you're renting right now, you don't have a house you need to sell first. So there's no contingency hanging off your offer. So a first-time buyer who can stay flexible on timing, maybe even offer a short rent-back, can beat a higher offer that has that condition attached,” says Harris.
What to do if you keep losing out
There's no clear end in sight—for first-time buyers, downsizers, or anyone trying to wait out rising ownership costs.
“I don't expect meaningful relief until the market sees a sustained increase in inventory. More homes give buyers options and reduce the intensity of competition,” says Kelczewski. “On the carrying cost side, insurance premiums are likely to remain elevated in many regions due to higher replacement costs and increased catastrophe risk, while property taxes will continue to reflect local assessments and municipal budgets.”
If you’re an interested homebuyer who keeps losing out to other offers, Harris recommends doing everything you can to level the playing field.
“For the ones who do have a house to sell, a lot of it comes down to the offer, not just the price,” she says. “You want to take as much of the risk off the seller's plate as you can. So that could mean putting up more earnest money, coming in with a strong price, and then tight, believable, deadlines on when your own house goes under contract and when it closes.”