Historically, first time homebuyers account for about 40% of the market. In December, the percentage of first time homebuyers fell to 27%. That is the lowest level since the National Association of Realtors began tracking this stat in 2008. So, what are reasons behind this? Below are a couple of reasons:
1) Credit. Fannie, Freddie, and FHA are keeping a lot of first time homebuyers from being able to qualify because of credit scores. The average credit score on loans to buy homes last year was 750 which is 50 points higher than the AVERAGE FOR ALL CONSUMERS. While I believe good credit is a must, that score is just too high.
2) No down payment mortgages. With the mortgage crisis in 2008 these all but went away. Once again, I agree with smart lending but Fannie, Freddie, and FHA should all have some type of no down payment loan. If someone’s credit score is high, ratios low, and job security high, then we should have a mortgage that works with no money down.
So, what is the risk of keeping the first time homebuyers out of the market? The housing market is currently entering a pivotal time. Distressed properties made up just over 16% of all homes sold in the U.S. in 2013. A lot of these were investor cash transactions as total cash sales in December accounted for 42% of all homes sold. With prices rising you will likely see the number of distressed properties fall and the percentage of investor transactions also fall. It’s the first time homebuyers that need to pick up this slack. But, along with the 2 obstacles above, they are likely to encounter another obstacle, higher interest rates. Put these 3 together and the housing market has the potential to take a big hit. Not only from the lack of first time homebuyers but the move up buyers who depend on the first time homebuyers to buy their homes.
We are currently in a major over correction in the mortgage industry. While 7 years ago mortgages were being made to just about anyone, now it seems you can only get a mortgage if you don’t need one. Plus, throw the Dodd-Frank bill and the Qualified Mortgage on top of that and it gets even worse. It’s time for some common sense. Yes, do away with the 100% stated income no doc loan. But lets not punish the hard working family that has good credit, a good job, and wants the American Dream. To remain healthy the mortgage giants must make it more affordable for the first time homebuyers. It’s time for Fannie, Freddie, and FHA to roll out some common sense no down payment programs.