Where the housing market stands is a prime topic of discussion these days; where does the market stand and has it improved are questions asked almost every single day. One common topic lately tends to be on first-time home buyers and why there are less of these buyers recently. Is there just a lack of first-time home buyers or is there another reason the percentage of these buyers has decreased?
First-time home buyers are essential to real estate recovery and stand for about 40 percent of sales over the past thirty years. This percentage is starting to drop in recent months due to the cost of homes increasing. According to the National Association of Realtors (NAR), nationally the median existing home price in the United States increased to $214,200 in June, up 13.5 percent from June 2012. The median existing home price continues to rise even though the existing home sales fell 1.2 percent in June.
First-time home buyers typically purchase a starter home which allows current homeowners to move on to larger, more expensive homes. When first-time home buyers are not able to purchase these starter homes, due to lack of availability, credit restrictions or any other limitation, other home buyers are not able to upgrade to the more expensive homes. Listed inventory for existing homes available is currently 7.6 percent below summer 2012 according to NAR. This has put a damper on the real estate market in recent months causing sales to drop.
What exactly is keeping first-time home buyers from purchasing?
- Cash Buyers. Cash buyers are the most attractive buyers in the market, and today, there are more than ever. First-time home buyers characteristically purchase homes through finance options. If there is a cash offer on a home, the chances of finance offers even being considered? Not likely.
- Young Demographic. First-time home buyers on average consist of young couples in their 20s or 30s and are more likely to be unemployed or underemployed, have sizeable student loan debt, a less-established credit record or just weaker credit scores in general. These likelihoods make it difficult for first-time home buyers to compete in the market.
- Investors. Investors are able to grab homes from right under other home buyers’ noses. Investors have saved money for years just waiting for the chance to purchase homes at a great deal. Now, they are able to out bid those first-time home buyers.
Housing markets that are in an area that has new jobs are the markets that are doing the best within the United States. These markets tend to be more attractive to those first-time home buyers because this is where the young demographic are able to find employment. According to NAR first-time home buyers accounted for 32 percent of purchases of existing homes in June 2012, but this year it is down to 29 percent. First-time home buyers are essential buyers to the economy, not only do they purchase older homes, but they also purchase furniture and renovations which help local businesses.
Will first-time home buyers be able to rule the housing market once again? At this rate the all cash buyer percentage is rising due to the positives to an all cash buy versus a financed buy. Even though first-time home buyers are essential to the economy, as long as there are cash buyers, those offers will more than likely be accepted over any financed offer.
Valuation Management Group is a national appraisal management company who manages the appraisal process for many community banks, mortgage bankers and credit unions whom specialize in helping first time home buyers obtain a mortgage loan.