0
0
0

Where Have All the First-Time Buyers Gone? 6 Explanations For the Decline

by Peter Thomas Ricci

The market share for first-time homebuyers just keeps falling; what could be behind the fall?

First-time homebuyers in 2014 have made up just 33 percent of primary residence purchases, according to new numbers out this week from the National Association of Realtors; that’s down from 38 percent in 2013 and the lowest level since 1987.

Here’s a graph showing the market share for first-time buyers, per numbers NAR provided us:

In case you’re wondering, that big spike in 2009 and 2010 is an aberration – not only were home prices at historic lows, but the government’s first-time homebuyer tax credit was in full swing, when an $8,000 tax credit (which expired in June 2010) was floated to boost home sales.

Regardless, first-time homebuyer market share is most definitely dropping, and there are a number of possible causes for that decline. Here are the six most notable:

1. Massive Student Debt Burdens – This is easily the most obvious cause, but that does not mean its untrue. Not only did a recent study estimate that student debt cost the economy some 414,000 home sales thus far in 2014, but as we’ve covered before, student debt is a uniquely troublesome, uniquely damaging form of debt, and one that could have outsized impacts on housing. Case in point: not only does bankruptcy NOT discharge student debt, but the government can legally garnish wages and even social security payments to reclaim its funds.

2. Inadequate Savings – Even a 3 percent downpayment requires a hefty savings from the seller, and very troubling research from the Fed shows that the recession wiped out savings for a vast number of Americans. A couple unsettling facts: a quarter of Americans needed to exhaust all or nearly all of their savings after 2008; and only 48 percent of Americans can cover an emergency $400 expense without either selling something or borrowing.

3. Inadequate Incomes – The unemployment rate for 20- to 24-year-olds remains stubbornly high at 11.4 percent, and millions more remain underemployed, meaning they want full-time work, but can only find part-time work. Another stat, courtesy of the Fed’s Survey of Consumer Finances, is particularly notable – if you’re a Millennial, and you have a net worth of more than $10,400, you’re richer than half the Millennial generation.

4. Tight Lending Standards? – We put a question mark at the end of that subhead because it’s not entirely clear that tighter lending is prohibiting first-time buyers. Though it is true that lending standards remain high (and that they’ve likely tightened further in the last year, as we recently chronicled), there are a couple of historical precedents that pose problems for that narrative. First, the share of first-time buyers fell to 36 percent in 2006, and that’s when lending was extremely loose and accessible; and second, though credit was tighter in 2009 and 2010, first-time buyer share still jumped on the back of the aforementioned tax credit; so likely, there are more fundamental things at play than lending standards, when it comes to first-time buyers lagging numbers.

5. Incompatible Inventories – Finally, everyone knows that housing inventory remains low nationwide, but it’s especially low for entry-level, first-time buyers. As we reported, the inventory for entry-level homes is down 17 percent nationwide, and that percentage runs even higher in certain metro areas.

Read More Related to This Post

Join the conversation

Oops! We could not locate your form.