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Market for First-Time Home Buyers Shrinks
Friday, November 7, 2014 6:30 AM

Home Economics

First-time home buyers made up the smallest share of U.S. buyers in nearly three decades, a traditionally solid slice of the housing market whose absence is raising questions about the impact of the crash on potential homeowners.

The finding, in a report by the National Association of Realtors, said about 33 percent of home buyers were first-time purchasers during the 12-month period that ended in June. That is down from 38 percent in the year-earlier period and off from the 40 percent that the group said is the historical norm.

Since the financial crisis, first-time buyers have contended with a confluence of factors making a purchase more difficult. Wages and benefits have been relatively stagnant, growing only 0.5 percent per quarter on average since the recession, according to a Labor Department index released last week.

And the average down payment, typically a hurdle for new buyers, was 18 percent in September, only slightly lower than the 19 percent put down in September 2013, according to Ellie Mae, a mortgage software provider that tracks the characteristics of loans run through its platform.

“Rising rents and repaying student-loan debt makes saving for a down payment more difficult, especially for young adults who’ve experienced limited job prospects and flat wage growth since entering the workforce,” said NAR chief economist Lawrence Yun.

Beyond the issues of affordability, some renters might be putting off home purchases because of the damage they saw housing do to the last generation of buyers, said Doug Duncan, chief economist of mortgage-finance company Fannie Mae.

Mr. Duncan said that when looking at reasons for not buying, renters typically don’t put tight mortgage credit as one of the primary concerns. “Today, demand weakness trumps credit tightness,” he said.

Builders have been slow to commit to the first-time buyer segment. Before the housing bust, first-time buyers made up about 40 percent of the business of builders. Now, such buyers make up merely 5 percent of the builder’s business, in part a result of little demand from younger buyers.

 

Source: The Wall Street Journal, Nov. 4, 2014