Attracting more first-time homebuyers has become a regular point of emphasis for real estate professionals and lenders at a time when the demographic is less involved in the marketplace than it has been in three decades.
A recent CNBC report noted first-time homeownership rates recently fell to a new 30-year low - a trend driven mostly by restrictive mortgage approval standards but also by a general reluctance to make large purchases from many would-be first-time buyers. Much has been made of the millennial generation's considerable collective student loan debt, but plenty of 30- and 40-somethings have struggled to return to financial viability in the post-recession economy, as well. Compounding the situation is the fact that, in addition to being unable to secure a traditional loan of the Qualified Mortgage variety, many prospective buyers have found government-program options - such as those offered by the Federal Housing Administration - now come with add-on fees. What was once the most direct path to first-time homeownership - the FHA loan - requires some revision, as loans through the Department of Veterans Affairs generated considerably more activity.
That disparity is in part due to the number of Iraq and Afghanistan veterans who have returned stateside and become eligible for VA loans in the past few years. But as Realogy CEO Richard Smith told CNBC, it's also because the recently instituted FHA fees create headwinds for first-timers. Smith says the methodology for underwriting such program loans needs to be streamlined, not necessarily for the sake of easier qualification standards but in an effort to enhance overall affordability.
"Banks have a very difficult time adjusting to the new environment, which holds them accountable even for technical defaults, so the putback risk is very high." explained Smith. "Lenders know it and they've been reluctant to lend to first-time buyers for that reason. The first-time buyer, traditionally, is a higher-risk buyer. But with some, I think, basic considerate underwriting we can get the first-time homebuyer back."
Dwindling demand or shifting priorities?
The most recent data from the National Association of Realtors revealed first-time homebuyer purchases represented just 33 percent of all market activity through three quarters of 2014 - down from 38 percent in 2013. Surveyed Realtors estimated the long-term average, since such data began being collected in the early 1980s, is about a 40 percent participation rate from first-timers. So there has clearly been a shift in market dynamics. The labor sector has also played a role in catalyzing first-time homebuyer participation. In October, average U.S. worker wages increased more than 0.5 percent, but for much of the past two years salaries have been relatively stagnant. When people aren't earning more money, they're generally hesitant to spend more - particularly for long-term, big-ticket purchases such as homes. A recent Wall Street Journal story also posited that the scars of the recession - and more specifically, the housing market's downturn - may also be weighing on the minds of some Americans who otherwise would have made the leap by now. That collective skepticism, according to some analysts, is more impactful the tightened standards for credit qualification, as weak demand generally trumps any other lingering factors. In other words, many Americans have decided the perceived risk of applying for a mortgage and owning a home can wait, especially as they tackle other priorities with limited funds.
"Rising rents and repaying student-loan debt makes saving for a down payment more difficult, especially for young adults who've experienced limited job prospects and flat wage growth since entering the workforce," noted Lawrence Yun, the chief economist for the NAR. The hope is that with improved labor growth, rising wages and - perhaps most importantly - changes to the way certain loans are underwritten and offered, the demand from first-time homebuyers will resurface.