The average price of a home in the US has fallen to pre-2002 levels and interest rates are as low as they’ve been in living memory. So why is it that the number of first time buyers seems to be dropping, given all the incentives they have to act right now?
According to a report in the New York Times, first time buyers these days have accounted for around a third of all residential property deals in 2011, but this proportion has traditionally always been closer to 50%.
First time buyers are facing a number of obstacles that is stopping them from getting onto the property ladder. Higher down payments are one thing, but coupled with the heavy debt that many young professionals face from student loans and credit cards, it’s not surprising that many simply can’t afford to act. Back in 2002, the median down payment on a single family home was just 4% of its value, but now that has risen to 22%, according to Zillow’s latest statistics.
Moreover, most young people simply cannot qualify for mortgages in the current climate. FICO now requires a median credit score of 760, compared to the 720 that was required back in 2007. This means that for around a third of households in the US, a mortgage is simply unobtainable right now.
What’s more, even those young people who can afford to act aren’t bothering, the reason being they simply don’t believe that real estate is worth investing in right now.
Seth Herter, 23, a store manager from St. Louis, pointed out that while he could afford to buy a home if he wanted to, he said that doing so simply doesn’t make sense at this moment of time, while prices are continuing to fall.
Many analysts feel that once the economy improves, housing markets will do the same. But that doesn’t mean that first time buyers are going to automatically jump onto the bandwagon – not until they are sure that real estate is a good investment.
Mark Vitner, an economist with Wells Fargo, admitted as much, saying first time buyers will only come back once they feel prices are going to rise again:
“It’s a guessing game as to when things will turn around. But until they do, you won’t see young people buying homes.”