Over the past several months, the real estate market has been defined by a series of stops and starts. Just when it seems that the market is poised for a full blown recovery, there will be a new report or a new series of data that shows that the market is recovering, but at a very slow pace. In the past, whenever the real estate market needed a jump-start, it would turn to a new set of buyers from the first-time homebuyer pool. With everything that has happened in the lending world over the past ten years, new lending programs won’t be coming anytime soon. With no new programs in place, the market has remained sluggish and won’t see a full recovery until first-time homebuyers come back in full force.
Historically, the buying pool is made up of buyers selling and buying up, buyers downsizing or first-time homebuyers. There has still been some activity with buyers moving in one direction or another, but the first-time homebuyer segment has taken the biggest hit and had the most impact. These buyers are primarily made up of recent college graduates and young adults. With more college students carrying debt, it has increased debt obligation, lowered savings and made getting approved for a loan much more difficult.
In addition to increased debts, prospects of finding stable employment is much less likely in the current employment landscape – further increasing the chances that recent graduates and young adults will rent for the foreseeable future. If there is not enough demand, prices will suffer and home prices will fall accordingly. To date, this has been a less than successful spring selling season for many sellers and the lack of first-time homebuyers has greatly contributed to this.
Every individual real estate market is different, but some national trends hold true regardless of location. Sales volume and prices may be up in certain parts of the country, but eventually, without a strong influence of first-time homebuyers, even the hottest markets will run out of buyers. Programs aimed at attracting these buyers have recently changed their guidelines, making them much more difficult to obtain. A few lenders have lowered their credit score requirements, but to offset that they either increased rates or added increased asset requirements or documentation. These same lenders are tempted by the boom of buyers that come along when the market was in full swing last decade. Remember the pain of the previous five years? The obvious solution is to find a common ground somewhere in the middle where new buyers can put less money down, but be held to restrictive application standards to offer lender protection. Whether and when these programs are in the works is anyone’s guess, but what is not arguable is that without a strong presence of first-time homebuyers the real estate market will not truly rebound.
The real estate market is certainly headed in the right direction, but it needs the little push that an influx of first-time homebuyers would provide. This may come from a change in lender guidelines or an increase in employment confidence. Without first-time buyers leading the way, the future looks like a series of stops and starts without really going anywhere.