It’s not a $64,000 question, but rather a $41,000 one. “Where are the first-time buyers?” It’s important because $41,000 is the amount renters have missed out on by not buying three years ago when prices were at a low point. The annual median home price was $166,100 in 2011 and $197,100 in 2013. The median national home price this year is expected to hit $207,000. Money left on the table.
Unfortunately, our most recent data show first-time buyers are a shrinking share of the market, only about 27 percent of buyers, compared to 40 percent in a more normal market. It’s not that young households don’t want to buy. It’s that desire is not matching up with their ability. Many young households are saddled with student loan debt while job creation and wages have been heading up only slowly. And the qualified mortgage rule that took effect this year to ensure lenders don’t make bad loans won’t help, since it tightens how much student loan and other debt loan applicants can carry.
This situation is worrisome, because all of the recent growth in household formation has been among renters. Unless a healthy portion of today’s 40 million renter households become home owners, the housing market cannot grow much.
There are two fronts to be tackled if first-time buyers are to get back to more normal levels. First, we must monitor the impact of the QM rule on otherwise qualified buyers to see if lenders are being too risk averse. There’s reason to think they are, because mortgage default rates have been at historic lows in the last few years. That suggests lenders have restricted underwriting too much in anticipation of QM. Second, builders need to step up home building, bringing construction levels closer to historical norms. More inventory helps tame price growth, and it gives buyers something they don’t have much of now: selection.
The bottom line: Housing is under performing. In 2000, when the market was boring, with no bubble and no crash, there were 5.2 million existing-home sales and 1.6 million housing starts. Today, home sales are struggling to reach 5 million annually and new starts total only about 1 million, yet the country has 34 million more people and mortgage rates remain historically low. Those on the sidelines are missing out.
MARCH 2014 | BY LAWRENCE YUN http://realtormag.realtor.org/news-and-commentary/economy/article/2014/03/plight-first-time-buyers