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Where are the first-time buyers?

By Judy Martel · Bankrate.com
Thursday, August 30, 2012
Posted: 6 am ET

The combination of low home prices and mortgage rates makes it a great time to buy a home, but one critical segment of homebuyers is not biting.

The number of first-time homebuyers, normally accounting for 40 percent of the purchasing market, has dropped, according to the National Association of Realtors. In July, first-time buyers made up 34 percent of the market.

This particular segment of homebuyers is important because they are not selling another house in order to buy, which is especially important in reviving a sluggish housing market.

First-time homebuyers are faced with stricter lending standards and a 10 percent down payment requirement in most circumstances, making it more difficult for them to come up with the financing. Unemployment among younger potential buyers has also been higher than the national average.

In 2009 and 2010, when the government sponsored the first-time homebuyer tax credit of $8,000, new buyers accounted for almost half of the homes sold. According to the National Association of Realtors, first-time homebuyers will return if the economy picks up and more of the lower-priced foreclosed and distressed properties go on the market.

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9 Comments
Fran Miller
August 31, 2012 at 4:57 pm

What is ignored is the fact that during the first five years of any mortgage, 80% of payments are for interest. The banks have already made their money and could easily rewrite the loans if they were not tar-babies entangled in a briar patch of collateralized debt arrangements. Home equity, more than anything is symbolic of the false prosperity of the past twenty years. To allow the market to clear and seek a new equilibrium is just a vicious downward spiral that ends up with Barack Obama being foreclosed out of the White House because of the national debt. The rent-seeking, money-changers need to shake the Etch-A-Sketch and declare a Jubilee.

Judy Martel
August 30, 2012 at 5:01 pm

Thanks for the great comments. I plan to use some of them in a blog Tuesday about a survey showing investors are pulling out of the market.

Greg Cook
August 30, 2012 at 2:22 pm

Jaime hit the nail on the head. The competition from investors and cash buyers is keeping first time home buyers out of the market.

The loan of choice for most first time home buyers is FHA, which only requires 3.5% down and many of them are using one of the down payment assistance programs which affords them the opportunity to buy.

If the latest figures are correct, then the rising prices are now pushing investors to the sidelines so maybe there is a silver lining?

Jaime
August 30, 2012 at 12:09 pm

Judy..I can tell you from experience that the first time home buyer is having a very hard time competing with INVESTORS in today's market. FHA is also being taken off the table by many sellers. The majority of homes available may be foreclosures and short sales these can be intimidating to navigate either d/t condition of sale or competition. Also, I believe that agents are catering to investors even though you have these so called first look opportunities. Brokers know there is money to be made on multiple angles especially where investors are concerned. The FTHB is not a priority now. After a few failed offers/ deals, we sit, wait and re-organize out lives because life must go on outside of the home buying process. It is very exhausting. Some agents do not make the process any easier or comfortable, by "appearing" dishonest or portending a No Agency type of relationship. Foreign investors are winning, investors are winning. Banks are not lending readily, the scrutiny. Some of us are prepared willing and able..just can't navigate the dynamic rules that govern the current market and lending. INVESTORS ARE WINNING. I have taken it upon myself to get educated because I actually now find the process fascinating. I am constantly reading about the market dynamics. RENTALS. We will be but one big for rent sign soon.

Ray
August 30, 2012 at 9:10 am

Part of the reason first time buyer activity is slow, besides the reasons you mentioned:

1. Herd mentality. It will take time before first time buyers get out of this funk ("...I'll wait until prices start rising before I buy..."). Part of this is lack of experience in cycles (think 1970's to 1990's).
2. Younger folk tend to think shorter term relative to us older folk. Few think two years ahead, much less ten. Technology or flexibility might seem more important than future net worth.