10 REALTOR® MARCH/APRIL 2014 REALTORMAG.REALTOR.ORG
The Plight of First-Time Buyers
It’s not a $64,000 question, but rather a $41,000 one. “Where are the first- time buyers?” It’s important because
$41,000 is the amount renters have
missed out on by not buying three years
ago when prices were at a low point. The
annual median home price was $166,100
in 2011 and $197,100 in 2013. The median
national home price this year is expected
to hit $207,000. Money left on the table.
Unfortunately, our most recent data
show first-time buyers are a shrinking
share of the market, only about 27 percent of buyers, compared to 40 percent
in a more normal market. It’s not that
young households don’t want to buy.
It’s that desire is not matching up with
their ability. Many young households are
saddled with student loan debt while job
creation and wages have been heading up
only slowly. And the qualified mortgage
rule that took e;ect this year to ensure
lenders don’t make bad loans won’t help,
since it tightens how much student loan
and other debt loan applicants can carry.
This situation is worrisome, because
all of the recent growth in household formation has been among renters. Unless
a healthy portion of today’s 40 million
renter households become home owners,
the housing market cannot grow much.
There are two fronts to be tackled if
first-time buyers are to get back to more
normal levels. First, we must monitor the
impact of the QM rule on otherwise quali-
fied buyers to see if lenders are being too
risk averse. There’s reason to think they
are, because mortgage default rates have
been at historic lows in the last few years.
That suggests lenders have restricted
underwriting too much in anticipation
of QM. Second, builders need to step up
home building, bringing construction
levels closer to historical norms. More
inventory helps tame price growth, and it
gives buyers something they don’t have
much of now: selection.
The bottom line: Housing is underperforming. In 2000, when the market
was boring, with no bubble and no crash,
there were 5. 2 million existing-home
sales and 1. 6 million housing starts.
Today, home sales are struggling to reach
5 million annually and new starts total
only about 1 million, yet the country has
34 million more people and mortgage
rates remain historically low. Those on
the sidelines are missing out.
Lawrence Yun is
NAR chief economist.
PENDING HOME SALES INDEX
Measures housing contract activity. An index of 100 is
equal to the level of activity during 2001, the benchmark year.
Seasonally adjusted annual rate, which is the actual rate of sales for
the month, multiplied by 12 and adjusted for seasonal sales di;erences.
Number of existing homes on the market at the end of the month.
Derived from monthly REALTOR® Confidence Index. Results for
January are based on 3,303 responses to 6,000 surveys sent to
large and small real estate o;ces. The survey asks practitioners
to indicate whether conditions are strong (100 points),
moderate (50), or weak (0). Some data may be revised from
The year got o; to a cool start as cold and snowfall slowed sales in the East and
Midwest and continuing tight credit conditions along with weak inventories kept
sales underperforming throughout the country. In coastal areas, flood insurance
uncertainties remain a factor. Trend lines are from January 2013 to January 2014.