By AnnaMaria Andriotis
The vast majority of home buyers already own a home.
Despite low interest rates, low prices and slowly rising sales, first-time homeowners accounted for just 34% of all buyers in July, according to data released this morning by the National Association of Realtors. While that figure has inched up slightly from the month and year prior, the association says first-time home buyers account for 40% of purchasers under normal conditions.
The reluctance of newcomers to enter the market may be further adding to housing’s woes. After all, first-time buyers are vital to boosting sales, especially during downturns, since when they buy a home, they aren’t also selling a previous home to finance the purchase.
Their recent absence is largely due to the current challenges of saving up enough for a down payment: In a survey released in June by Trulia, an online real estate marketplace, 47% of all adults who aren’t homeowners and who wish to buy a home said that the down payment is the biggest obstacle to entering the housing market. Most mortgages require at least a 10% down payment, and in some pricey markets, like New York and San Francisco, coming up with that cash can take years, says Jed Kolko, chief economist at Trulia. A poor credit history, which makes it difficult to qualify for a mortgage, was the second most common issue holding back would-be first timers, according to Trulia’s survey.
Many potential buyers are also facing higher unemployment rates than other groups. The unemployment rate among 25- to 34-year-olds stood at 8.2% in July, compared with 6.9% for 35- to 44-year-olds and 6.5% for 45- to 54-year-olds, according to the Bureau of Labor Statistics.
Separately, first-time buyers are competing against investors — who tend to have all-cash offers and who go after the same, lower-price homes, says Leonard Baron, real estate lecturer at San Diego State University. Sellers who are eager to unload their homes are more willing to work with investors, since the sale doesn’t hinge on a bank’s decision to approve them for a mortgage. More recently, experts say, tight inventory has made it even harder for first timers to compete.
In the past, government intervention encouraged more first timers to buy a home. They accounted for nearly half of all purchases during the first half of 2009 through spring 2010, according to the NAR. That spike was partly attributable to the federal government’s $8,000 tax credit for first-time home buyers.
But there was also a larger supply of homes to choose from at that point, says Walter Molony, a spokesman for the NAR. Going forward, experts say, a larger economic recovery will have to occur in order for more lifelong renters to become home buyers. And more lower-price-range homes — in particular, foreclosures and other distressed properties now being held off the market — need to go on sale, says Molony.