First Time Home Buyers Are Not ALL That

By
Mortgage and Lending with Canopy Mortgage, LLC NMLS 124492

The Housing Domino EffectSince early fall 2008, much has been said and written about the importance of first time home buyers to the stability of the housing market. Most tenured real estate professionals understand the domino affect that can occur by way of the first time home buyer.

Historically speaking this mind set has absolutely been the truth. As first time home buyers entered the market, it allowed the sellers of the preexisting home to move up which in turn allowed another family to move up, etc...

In my experience as a Certified Mortgage Planner for 10 years in Chesterton Indiana, the normal series of home transaction would result in the following home purchases: First Time Home Buyer --> Family Home --> Executive Home --> Luxury Home --> 2nd/Vacation Home --> Empty Nester. This is not to say that this happens in this exact sequence every time.

This domino effect has been the focus of Congress, National Association of Home Builders, National Association of Realtors and anyone else associated with the real estate industry. There is just one problem.This housing downturn is like no other before it due to the nature of the financial crisis.

In my local real estate market in Northwest Indiana and I'm confident in yours as well there is a missing domino. What could it be?

Think about what kind of homes the first time home buyer is actually purchasing.

Is it a property that involves any of the following aspects: new construction, foreclosure, sheriff sale, bank owned, REO, distressed, HUD repo, abandoned, bankruptcy, rehab, etc... If any of these scenarios are true the first time home buyer is not initiating the domino effect because there is no traditional seller to move up.

Did you catch that? No move up buyer. That is why sales ranging in value up to $100,000 is up in every region of the country while sales above the $250,000 threshold are down year-over-year.

Although significant, First Time Home Buyers Are Not ALL That!

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Rainer
26,939
Theodora Wu
TJ Investments - Burien, WA

You are right.  First time home buyers are not likely to be able to afford better homes.  Getting into mare expensive homes often requires several prior home purchases and time.

Oct 21, 2009 04:21 AM #1
Rainmaker
701,943
Pat Champion
Coldwell Banker Camelot Realty - Mount Dora, FL
Call the "CHAMPION" for all your real estate needs

It takes every range to change the market at least there are properties moving in the market. Thanks for the activity.

Oct 21, 2009 04:22 AM #2
Rainer
4,887
Tom Caulfield
First Financial Lending Corp. - Grosse Pointe, MI

Interesting viewpoint.  And true.  Good information.  Thanks for shedding light on this subject.

Oct 21, 2009 04:25 AM #3
Rainer
70,975
James K Barath, CMPS
Canopy Mortgage, LLC - Crown Point, IN
FICO Pro, Certified Military Housing Specialist

Theodore - It's not about affording better homes. The homes they are buying do not result in another purchase.

Pat - You are correct. A funtional market requires sales in every range.

Tom - Glad that you agree. Now what do we do to remedy it.

Oct 21, 2009 04:30 AM #4
Rainmaker
131,694
Michele Reneau
Certified Staging Professional (CSP) Elite Instructor - Summerville, SC
Realtor, GRI ~ Charleston, SC Relocation Experts Team

James-This is an excellent point.  At least first time homebuyers are moving some property off the shelves but some people are probably putting too much hope in first time buyers to relieve the market.  People that can really help the market are those sellers than want to move up but can't. Maybe stipulations should be put on the tax credit or a larger credit given to buyers that purchase a resale i.e. non-foreclosure, non-short sale, non-new construction.  I've been saying for years that if the builders would quit building in my area, the market would level off.  There are some areas where new construction sales account for 50% of closed properties.

Oct 22, 2009 12:03 PM #5
Rainer
70,975
James K Barath, CMPS
Canopy Mortgage, LLC - Crown Point, IN
FICO Pro, Certified Military Housing Specialist

Michele - 50% of sales attributed to new construction is not a healthy market unless it is a booming employment driven market. I could only imagine how skewed that market is relative to move up buyers. BTW: How is Chattanooga?

Oct 23, 2009 03:28 AM #6
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Rainer
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James K Barath, CMPS

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