MIA - First time buyers

According to a recent National Association of REALTORS® (NAR) article, in January, first-time home buyers made up 29 percent of the market, the lowest since NAR began tracking first-time buyers on a monthly basis in 2008. First-time buyers normally make up 40 percent to 45 percent of all purchasers. Where'd they go? USA Today also had a recent article that highlighted some of the factors that have first-time home buyers sitting on the sidelines, even though home prices continue to all and mortgage rates are near their all-time lows. USA Today sited: • Tougher lending standards – Not only have lenders tightened up their requirements, but they have also backed away from most of the down payment assistance programs that used to allow these buyers to get into a home. • Expired tax credits – The tax credits were the tipping point for many first time buyers, especially with programs in some states that allowed the credits to be taken up front as part of the transaction. • Competition from cash buyers – While HUD and the GSE’s have programs that give first-time owner-occupants the edge over investors for really low-cost houses that have been foreclosed, investors are waiting like a tree full of vultures to swoop in as soon as the initial 10-14 day period for O-O buyers is up. I would add to this list that it is my gut feel that most of those first-time buyers who were really ready (with money saved up to take the plunge) have already bought. There is not an endless supply of first-time buyers, especially those that have been fiscally responsible and have been saving up to buy. I might add that I’m seeing the same thing start to happen with investors, especially smaller investors. They have tapped themselves out in cheap houses and are now pulling back to regroup a bit. There are still investor pools out there buying; but many of the small-timers are fully invested at this time. I suppose that, if there is a silver lining in the statistics, it’s that mid-range and upper end buyers are making up a higher percentage of buyers overall. The mid-range buyers (our traditional move-up buyers) seem to be testing the waters more and more as they become more confident in the overall economy. They are finding some great bargains in the market, although much of what is holding them back is that they can’t find t a first-time buyer to buy their current home. The Boomers are widely reported to be sitting on their McMansions, hoping for a miraculous recovery of lost value. That’s not likely to happen and it may take a few more years before they finally give up and swallow the losses. I suspect that most can hold out for a year or two once they retire before they realize that not only are they missing their dream retirement plans, but may also be stripping their savings to pay for those houses at a rate that will put those plans permanently out of reach. Having a highly leveraged a big house just doesn’t look nearly as smart, once you go on a fixed income. The upper end of the market has not been immune to the effects of the recessions either, with some really big homes falling into foreclosure; however, there is still a reasonable market for luxury homes and condos in this area. I suspect that it is much worse in Florida and Nevada and California. Still, one can get great deals in the $750K to 1.5 Million range for homes that were $1 – 2 Million. Ahhh, if only one had that 1.5 Million to invest. So, I see the buy-side of the market in my area in sort of a settling out and settling down phase right now. Even though values are still dropping, many would-be low-end buyers are already tapped out and need to sit the market out for a bit. Midrange buyers are cautiously reentering the market and the upper end is still puttering along like it always has. I suspect that by mid-year the market mix of buyers will reflect a more traditional percentage split between first time buyers, move up buyers and high-end buyers. As for the sell side, we are already seeing a drop in the number of foreclosures taking place locally; however, short sales have kept the distressed segment of the market over 50% of sales in my area. Leases also make up a much higher percentage of transactions than would historically have been the case, as owners who want to avoid a short-sale try to hold out for a return of lost value. The mid-range market continues to see low inventory as underwater owners also hold out (probably unrealistically) for lost value to return. Lots of second homes/vacation cottages are also sitting on the market in summer resort areas. That's what I see happening in the local market in the Milford Michigan area.