We have several friends who have recently purchased their first home or are in the process of looking. Most of them have been working for a few years, are feeling settled (enough) to stay in one place for a while and were tired of renting. I have spoken with all of them about what their experience has been like as first time homebuyers and they have all said the process is rather overwhelming. They didn't know where to begin, what they should be committing to, who the appropriate people were to talk to, if they were getting a good deal etc. Hearing all of this and knowing that at some point (not sure when) we would be in the same position, I wanted to do a first time homebuyer series. However, I was/am unsure where to start as its not necessarily a linear process and seems very dependent on location and timing. So I decided that I would just come at it from all different angles without necessarily having a plan.
I will start with sharing an article I read in USA today a couple of weeks ago. Entitled First time buyers losing out as home sales rise, the piece describes how for the last 14 months U.S. home prices have risen showing a positive trend in the market, however, the number of first-time buyers is lower than in years past. According to the National Association of Realtors, in May of 2013 first time homebuyers accounted for 28% of existing home purchases which is down 6% from last year and 8% from two years ago. The article, written by Julie Schmit, goes on to cite three key factors in this reduction.
1. Competition - A growing number of current buyers are cash buyers (33% this past May) or repeat buyers who can provide larger down payments. First-time buyers are unlikely cash buyers and often use low down-payment loans for making their first large purchase.
2. Tight Credit - Home loans are harder to get since the mortgage crisis especially for those with a lower credit score.
3. Recession - The recession affected everyone, however, the 25-34 year old age group experienced a higher unemployment rate than adults overall according to Jed Kolko, a Trulia economist.
The implications are that young people are missing out on low interest rates and below average home prices. In addition, first time buyers are vital to a housing recovery as they allow existing home-owners to sell and move into larger and more expensive homes.
As I am not economist or anyone who really knows anything about mortgages and the housing market, I can't really personally comment on the article. It did get me thinking though and has sparked me to pay closer attention to what is going on with mortgage rates and current market trends.