The housing recovery’s ‘missing link’
NEW YORK – Jan. 6, 2015 – For years, first-time homebuyers have made up around 40 percent of all buyers. However, since the recession, the percentage has been shrinking. In 2015, they made up under 30 percent, according to the National Association of Realtors® (NAR).
The decrease in first-time homebuyers has broad economic implications, housing analysts say. Without first-timers, an entire cycle of homeownership stalls. Current homeowners many times can't sell their homes and move up – and without move-up transactions, many older people can't sell and downsize for retirement.
"In terms of the real estate recovery, the missing link is first-time home buyers," says Rob Chrane, founder and CEO of Down Payment Resource. "They've been at record lows. Part of it is legitimate reasons. Part of it is just ignorance."
It's not that millennials don't show an interest in homeownership: according to a survey conducted by Fannie Mae, 56 percent of respondents between the ages of 18 and 34 plan to buy a home the next time they move.
But housing analysts say that the real estate industry plays an important part in bringing them into homeownership by explaining the financial benefits and teaching them how to make homeownership possible.
"Ignorance about the process, concern about the economic outlook, and some skepticism about ownership are all hobbling the return of first-timers," according to a recent article by MarketWatch.
Only 23 percent of potential first-time buyers in Fannie Mae's survey said they were familiar with low-downpayment programs, such as those offered by the Federal Housing Administration. The average consumer believed he or she needed 16 percent for a downpayment in order to qualify for a mortgage, according to the survey. Lower-educated and lower-income consumers, renters, African-Americans and seniors were more likely to assume they needed a higher downpayment to qualify.
In reality, homes can be purchased with as little as 3 percent down. Rules enacted in 2015 decreased the amount of mortgage insurance borrowers must pay on FHA loans, and Fannie Mae and Freddie Mac lowered their downpayment minimums. Both changes may have boosted first-time participation slightly, say housing analysts.
Chrane urges the real estate industry to educate would-be buyers on the possibilities to homeownership.
"There are more options out there than they realize, and they really need to look into them before they give up," says Chrane.
Source: "Why First-Time Home Buyers Are Staying on the Sidelines," MarketWatch (Dec. 31, 2015)
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