The Housing Recovery and First-Time Buyers
How the Recovery is Hurting Young Buyers
After a long, dreary time for the housing market, it’s recovering. And while many welcome this change, others are in despair.
Who isn’t benefiting as much as others are in this housing recovery? The National Association of Realtors reports that homebuyers in their 20s and 30s only account for 30 percent of buyers, which is a huge decrease from 2009, when 50 percent of sales were in this age range.
Home prices, increasing mortgage rates, and other factors are contributing to the decline in the ability of first-time homebuyers to purchase.
According to the NAR, the recovery is pricing first-time homebuyers right out of the market. In June, the average home price was $214,200. This is 13.5 percent more than a year ago.
While rising home prices are good for sellers, they're not so great for buyers. This is reflected in decreased sales in June, which fell 1.2 percent. Still, despite this decrease, it’s still better than where the market was a year ago – actually, it’s up 15.2 percent.
A rise in home sales is a good indicator of housing recovery, but it’s not a good sign of sustainable recovery. When first-time buyers can’t enter into the market because of pricing, this could eventually stall the housing recovery.
From the Wall Street Journal:
“First-time buyers are important to get the housing market to move to a new plateau,” said Steven Ricchiuto, chief economist with Mizuho Securities USA Inc. “Without them, you just get stuck at a marginal recovery environment.”
Why First-Time Buyers Can’t Purchase
Increasing home prices isn’t the only factor preventing first-time homebuyers from purchasing. Lingering student loan debt is causing credit problems. The average credit score for young buyers is 720, which is low compared to 750 for current homeowners, according to Consumerist.
It’s difficult for many graduates to save money when they have to keep up on paying off high student loans. Their debt-to-income ratio is also high because of the astounding debt they have attached to their name. Young Americans combined hold $1 trillion in debt.
Due to not being able to save money, many first timers have a difficult time putting money down. This means they must buy mortgage insurance, which increases monthly payments. Insurance premiums have increased recently, which just causes more of a problem.
Investors are also creating a problem. Many are purchasing homes for sale in the price range young buyers would be able to afford in hopes they’ll be able to make a profit in a few years when house prices hit a high. This strategy is nothing new for investors, but it compounds the factors keeping first-time homebuyers out of the housing market.
Along with all of these factors, mortgage rates are increasing. The mortgage rate was in the 3% range just a few months ago, and now it’s at 4.51%. Rising mortgage rates results in higher home loan amounts and higher monthly payments, which many first-time buyers can’t afford.
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What First-Time Buyers Can Do
What can first-time homebuyers do to purchase right now? A Mortgage Credit Certificate (MCC), which many people don’t know about, can provide a significant tax relief. It’s available from the state or local government.
Lenders know about the MCC and can help with the filing process because in many cases, it can help people qualify for a home loan. Not all housing areas qualify buyers to receive the MCC, so checking with a realtor can help ensure buyers end up in the right area.
Down payment assistance is also available for first-time buyers. It’s not only for low-income households.
Marietta Rodriguez of NeighborWorks America explained this to Bankrate.com:
While these programs vary widely, most allow the borrowers to earn from 80 (percent) to up to 120 percent of the median income for their area. It’s important that people know that down payment help isn’t a thing of the past.
Down payment assistance programs are offered from municipalities and non-profit housing counseling agencies.
If first-time homebuyers can swing it, buying a home right now is a good idea. Home prices are projected to continue to increase, which means if you sell in the next few years, you’ll likely make a profit. Investors know this, and that is the reason they're seizing the low cost homes from cash strapped first-timers.
But don't worry if you can't swing it yet. Getting into the market will become easier. Demand is high right now, but as prices rise, homeowners will start to want to sell their home to make a profit from when they took advantage of the slump. This will increase the supply of homes, which should end up satisfying the needs and wants of first-time buyers and investors.
What should you do now? Keep paying on student loans, research the MCC, search for down payment assistance programs, and look out for homes to buy in your price range. It’s still possible for first-time buyers to get into the housing market and benefit.
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