Mortgage rates are still low and the housing recovery still appears to be moving along. But in many markets around the country, fewer potential buyers are making that first step toward buying a home. Although the reasons for their absence from the housing scene is as varied as they are, the fact that many first time home buyers are missing in action is changing the balance in key ways.
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 first 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 few houses they can afford.
The absence of the first time buyer from 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/ginnie5)
RE Insider. “Are First-Time Buyers An Endangered Species?” REOnsider.com.. 16 Jul 2013.
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