It wasn’t that long ago when lenders were turning away business and housing demand far exceeded supply. Fast forward some seven years later and things have certainly changed. Depending on where you live the real estate market has recovered quite nicely in recent years but has yet to truly take off. The catalyst behind any full blown purchase movement has always been and will remain to be first time homebuyers. This segment of buyers can propel the market past any sluggishness and get the market going again. Nothing will jumpstart the buying market like the influence of first time homebuyers.
In times when the housing market is robust there are a large number of loan programs aimed at first time homebuyers. In the past some of these programs went too far with many minimal down payment and stated income loans but in today’s market they are all but gone. The only real product for a first time homebuyer is an FHA loan that requires a minimum down payment of 3.5%. While the interest rates are lower than conventional loans the private mortgage insurance and the difficult appraisal process make them far from ideal. Lack of programs is only one detriment to would be buyers there are also other factors at play.
Many first time buyers are fresh out of college and saddled with student housing obligations. These obligations coupled with an uncertain job market make it difficult for a buyer to either come up with a down payment or feel comfortable with their new monthly loan payment. The logical alternative is to rent until savings can be increased or they know where they are going to work long term. With many savings accounts nonexistent it is difficult to come up with the down payment plus closing costs required to buy a house. All of these factors have lead buyers to feel comfortable renting for many years without any real change of heart.
If you rented in the past you were most likely looking at an apartment or a space not much bigger than where you lived in college. The renting inventory has changed dramatically since the market collapsed and there are many single family homes that could be rented for much less than a mortgage payment. Additionally, as a renter you do not have to incur costs for taxes, insurance, rakes, shovels, lawnmower and other everyday expenses. This has made renters more comfortable with their living situation and despite record low interest rates and home prices they have no desire to buy at this time. Nothing can replace the long term savings, tax benefits and security of owning a home but for many they will not begin to look until things change.
Small tweaks in loan programs could propel first time homebuyers back to the market. The same can be said if the economy strengthens or rental prices increase. The real estate market is on stable footing but if there is going to be a rapid increase in values first time homebuyers will certainly be behind it.