Active First Time Homebuyers, Despite Skepticism

First-time buyers are out and active, buying houses at nearly the same pace as they were before the first-time homebuyers credit first stimulated demand two years ago.

So far this year the first-time buyer market share has been quite steady, ranging from 32 to 36 percent of existing home sales through the spring and summer buying season, according to a survey conducted by the National Association of Realtors.

A survey of real estate brokers, found that the first-timer market share has varied 35 percent in January to 37.7 percent in August. First-time homebuyer share of short sales hit a peak of 54.1 percent of all short sale transactions in November 2009, just before the originally-scheduled expiration of the federal homebuyer tax credit.

Today’s 32 to 38 percent range is not far below the 40 percent market share first-time buyers had in 2003 & 04, before the boom drove prices out of reach of man or the tax credit created an artificial, temporary demand.

Regardless of the fact that first-time homebuyers are burdened with higher down payments, harder credit requirements and mortgage approval delays, those have not proven to be deal breakers.

First-timers have found ways to deal with higher down payment requirements. FHA’s 3.5 percent down market share has risen from 3 to 30 percent since 2006, even with tighter credit criteria and higher fees that took effect a year ago, FHA remains the financing of choice for most first time buyers. Moreover, rents are rising and rental choices are dwindling as vacancy rates rise.

So why aren’t first-timers buying more than they are? Fannie May’s recent National Housing Survey can help answer that question. Future outlooks rather than current realities are keeping buyers at home.

September’s survey showed a marked decline in consumer expectations of home prices over the next year-their weakest outlook since monthly tracking began in June 2010. Consumers simply continue to demonstrate very negative outlooks. At the same time, the share of consumers expecting mortgage rates to go up dropped sharply to the lowest level we have recorded, likely influenced by the news that the Federal Reserve will attempt to keep interest rates low for years to come.

The absence of a sense of urgency to buy homes, given prospects for further drops in home prices and continued low mortgage rates, joined with general doubt regarding their own personal finances and the economy, makes for a slow recovery of the housing market.