First Time Home Buyers Facing Competition from Cash Buyers



According to an article in CNBC.com, first-time homebuyers are facing increasing competition from people with full cash offers that are often more than the asking price. This is a particular problem in the more expensive housing markets such as San Francisco.

Last December sales for the Bay Area were the weakest for six years, according to figures from DataQuick, but prices are continuing to rise. This is largely due to a lack of inventory combined with investors who are often cash buyers. In December 2013 the median home price of a property in the Bay Area had increased by 24% compared to December of the previous year, a price increase that leaves little hope for first-time buyers.

© grgroup - Fotolia.com

© grgroup – Fotolia.com

The real estate market nationwide doesn’t show such dramatic gains, but first-time buyers are still finding it difficult to get a foot on the ladder. In December they accounted for just 27% of sales, which is the lowest figures seen since the National Association of Realtors began tracking this sector in 2008. Historically first-time buyers should account for 40% of the market, but their numbers are dropping due to poor salary growth, high student loan debts and poor employment prospects as well as less than perfect credit scores. First-time buyers also have the added problem in that they typically purchase homes at the lower end of the market and have ended up competing against all-cash investors. In December the number of sales completed for in cash accounted for 42.1% of the market compared to 38.1% in November and just 18% in the previous December.

Last year sales of distressed properties accounted for 16% of all home sales compared to 14.5% the previous year according to figures from RealtyTrac. Most of these homes tend to be priced at less than $100,000, a figure that should be affordable for first-time buyers. However sales of properties in this price category dropped by 11.5% in December compared to December 2012, while sales of homes costing in excess of $250,000 increased by 14%.

In addition first-time buyers are also being hard hit by tough credit conditions. Mortgage lenders now require higher down payments, and while some first-time buyers are still able to get help from parents and relatives, others are not find it so easy as many have lost savings during the recent downturn. In the past first-time buyers would’ve turned to FHA loans, but fees and premiums have increased substantially over the past year which has meant fewer are choosing to do so. Even though Fannie Mae and Freddie Mac are financing more first-time home buyers there is still the simple fact that house prices increased substantially last year, decreasing the likelihood of many people being able to purchase a home.

About Allison Halliday

Allison Halliday is a Realty Biz News contributing writer. She handles International Real Estate and is a seasoned blogger.