After years of recession and post-recession drops in home sales, the housing market has finally rebounded. This year looks to be the year that analysts will point to as the one where the housing industry could finally breathe a bit and look forward to the future.
However, one group made fewer appearances than expected during the last home-buying season. Sales to first-time homebuyers once again dipped this year, marking the third year in a row this buying subset had slipped. First-time homebuyers accounted for just 32% of purchases in 2015. That’s down 1% from last year. It’s been 28 years since first-time homebuyers made up such a small portion of homebuyers.
There are a few reasons first-time homebuyers haven’t been making a bigger dent in the market.
- Sellers’ Market– Home prices have been trending upward in the last couple of years. First-time homebuyers, especially younger ones, may not have enough savings available for a downpayment as prices push that number higher. It’s one side effect of a booming housing market.
- Low Inventory – It’s been a good year for sellers. With unemployment at pre-recession levels, many people are looking to buy a new home. The result is plenty of demand, but not enough supply since new home construction has not kept up with market demand. When the quantity supplied to the market is limited, prices increase; once again, first-time homebuyers can find themselves on the outside looking in.
- Mortgage Credit Availability – While mortgage credit availability has generally been improving in the last couple years, it has been a very slow improvement. Some hopeful first-time homebuyers may not be able to obtain credit.
- Competition from Downsizers – Those who already own a home are seeing their properties increase in value and realizing that now is a good time to sell. Some of those sellers will want to purchase a larger home. But others may instead look to buy a smaller home, putting them in competition with first-time homebuyers. In its 2015 Profile of Home Buyers and Sellers, the National Association of Realtors (NAR) found that 22% of survey respondents were downsizing.
In addition, rents are quite high in many markets, which can make saving to buy a home more challenging.
It’s not all bad news for first-time homebuyers. There are aid programs and special FHA loans that can help make buying a first home more affordable. For example, Wyoming’s Home Again Program gives first-time homebuyers a lower mortgage rate, and a downpayment loan program can provide buyers with up to $10,000.
Other states such as West Virginia are luring in first-time homebuyers with their comparatively low housing prices. The state boasts a median sale price of $115,850.
And while mortgage rates are currently quite low compared to the historical average, the Federal Reserve has been increasingly signaling the likelihood of a rate increase. If the Fed decides to increase the federal funds rate at the December policy meeting, that could make buying a home even more difficult in the future.
Although he acknowledges some challenges in the market, Lawrence Yun, NAR’s chief economist, has predicted that the housing market will grow again next year to an estimated 5.4 million homes sold, up from 2015’s estimated 5.3 million homes.
Do you agree that the housing market will continue to grow next year? Do you think we will see more first-time homebuyers jumping in? Let us know in the comments.
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