In a recent article Bloomberg financial asked me to comment on the scarcity of first time home buyers in the housing market.
The lack of first time home buyers is not a new phenomenon. This group of mortgage buyers has been underrepresented in the market for years, and you don’t have to read tea leaves to figure out why:
– Median income growth has been very weak
– Majority of the jobs recovered in this cycle have been low wage paying jobs going to people 50 and over
– Lack of liquid assets for a down payment and closing cost even for a 3.5% down payment loan is an issue
– Parabolic rise in student loan debt since 2007
– Living at home is financially more beneficial in this economy for some
– Renting as an option has an appeal for those who aren’t settled economically or not married with kids.
– Base salaries for college grads in some sectors isn’t high enough to obtain mortgage debt
The bottom line is that unless we see income growth, more younger Americans working and more of those younger Americans with better base salaries, first time home buyers will continue to be shut out of the market and this will affect the overall housing recovery.
From Anthony Sanders:
Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988. Logan is also a financial contributor for Benzinga.com and contributor for Businessinsider.com
The shift away from real estate taxes has a lot to do with it. The states with the lowest real estate taxes also have the least affordable housing, the most foreclosures, and the lowest rates of of home ownership.
The normalizing of housing values threatens to further reduce the first time home buyer market. If housing prices continue to rise and incomes do not follow along, then many more will be priced out of the market. First time home buyers looking for a nice home may find that none are really available in their price range.
I wouldn’t consider it normalizing of home values. I would say it’s a reflation of homes that have a disconnect from economic reality due to
– Low Inventory created by the housing bubble
– Extreme low interest rates for a long period of time
– Historical % of cash buyers 20% above normal historic trend
Would the continue rise in rents would soften home prices in California?
Not really if inventory levels are still low. The market needs more supply to cool prices down and most likely now a job loss recession to get prices to come back down in any meaningful way
I’m interested in the apparent disconnect in high rent districts between what mortgage lenders consider to be “affordable” and what people actually pay for rents.
I and everyone I know pay 1600+ for rent, but institutions seem to think, despite this reality, that we can’t afford to pay this same amount into a mortgage.
It’s not just housing prices exceeding economic reality, it’s mortgage lender expectations which were set in the paleolithic era.
Rental application don’t have any DTI qualification all you need to do is get the landlord to approve the request
90% of all mortgage goes via Freddie, Fannie and FHA. So the guidelines are set by the U.S. government.
Owning the debt is much different than renting because you’re using the home as collateral and the bank a reposes the home if you miss the payments. Renting doesn’t that this issue and the Landlord just evicts the tenant
So, it’s much more harder to qualify for the debt of housing which has proper taxes and insurances added to the monthly payment where the renter just pays a set payment and doesn’t bother with taxes or insurances
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