Fewer First Time Buyers Affect the Housing Recovery

AMA7-17-13By many indications, the hosing recovery is still on the upswing. Mortgage rates remain on the low side and homes are available in most markets. So why aren’t first time buyers taking the plunge into homeownership? The answer, according to a new report from RE Insider, is complex, with broader implications for the rebound of the housing market as a whole.

Traditionally, first time homebuyers have tended to be young, secure in the workforce and ready to start a family. But today’s economic realities have changed that picture. More and more college graduates are leaving school with a burden of thousands in student debt – a phenomenon we’ve discussed in previous posts. That kind of debt makes recent grads reluctant to take on more debts in the form of mortgages. Not only that, defaulting on student debt damages the credit needed to qualify for a home loan.

Aside from student loan debt, an iffy employment picture means that some potential buyers simply don’t have the income available to swing a home purchase. According to a recent article in RE Insider, many loan types are requiring higher down payments – and imposing tighter standards for borrowing, which eliminates lower income purchasers.

What’s more the kinds of lower priced houses that are traditionally bought as “starter” homes are in short supply in some markets. Many current owners of those homes are still underwater with their mortgages or are unable to sell for other reasons, so the remaining houses available for sale may be priced out of a first time buyer’s budget.

Those low-cost, often foreclosed homes that firsts time buyers might be able to afford are also the target of barge-scale investors who can pay cash for properties for a quick transaction that removes them from the market. That effectively shuts out would be homebuyers who may be ready to buy – but find now houses they can afford.

The absence of the first time buyer form the market affects the evolving housing recovery in several ways. The growth of the housing market then rests on refinancing, new home starts and investor activity, as well as the movement of larger homes for which there are few new buyers. And because potential first time buyers are either choosing not to purchase or are locked out of the process entirely, the pool of renters continues to expand – good news for become property investors following Jason Hartman’s recommendations for building wealth in real estate.   (Top image: Flickr/CatieRhodes)

RE Insider. “Are First-Time Buyers An Endangered Species?” REOnsider.com.. 16 Jul 2013.

The American Monetary Association is your source for the latest monetary policy and financial news. Read more from our archives:

New Legislation Promises a Holistic Housing Policy

The QM Rule: Coming Soon to a Lender Near You

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