We’ve long heard that the housing market recovery suffers from a shortage of first-time buyers, and that the long-term outlook for housing largely hinges on their return.
This view was backed by economists who participated in a panel on Monday at the National Association for Business Economics annual meeting, held in Chicago. But panelist Ivy Zelman suggested that first-timers may be starting to come back.
For one, first-time buyers made up 52% of those who purchased a home with a mortgage in the third quarter of this year, said the chief executive of real-estate research company Zelman & Associates, citing combined statistics from Fannie Mae, Freddie Mac and Ginnie Mae.
It’ s important to note the percentage of first-time buyers looks less impressive when all home sales are considered, since that also accounts for cash sales. In August 2014, only 29% of all buyers of existing homes were first-timers, according to National Association of Realtors data. For comparison, between October 2008 and October 2010, an average 41% of all buyers of existing homes were first-timers, David Crowe, chief economist for the National Association of Home Builders, pointed out during the panel discussion.
Still, the purchase activity of home buyers younger than 30 who bought with a mortgage (with the intent to live in the home) rose 8%, year over year, in 2012, according to a Zelman & Associates analysis. Purchase activity for this group rose 10%, year over year, in 2013. And purchase activity rose 19%, year over year, in both 2012 and 2013 for those between the ages of 30 and 39.
What’s more, lenders are slowly loosening their lending standards, allowing more first-timers with lower down payments and credit scores to obtain financing, Zelman argued.
“After refis plummeted [due to an uptick in mortgage rates], there was a void and a capacity that mortgage companies wanted to fill,” Zelman said. But many people don’t realize that it’s getting a little easier to obtain a mortgage. “As far as they’re concerned, the mortgage market is closed. But the narrative is starting to change.”
In the coming years, as the youngest millennials turn 30, there should also be more demand for single-family housing, she said. While it’s true that people are delaying marriage and kids — and thus many times also delaying the purchase of their first single-family home — they won’t delay forever. Most mothers will have a desire to own a home with a yard for their growing families, Zelman said.
Effect on home building
An increase in first-time buyers can’t come quickly enough for the home building industry.
Throughout the 1990s and up until about 2005, new homes made up 16% of total sales, Crowe said. By comparison, in 2013, new home sales made up 8.8% of all sales. Move-up buyers are often able to buy a new home when a first-time buyer purchases their starter home, he explained.
Moreover, today’s first-time buyers are more likely to buy homes that are vacant due to foreclosure, he said. Because the former owners have left already, the sale doesn’t trigger another sale.
~ Written By Amy Hoak
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