People buying a home for the first time are usually young. They are probably at the beginning of their careers, which means that they do not have much money. In a recession, they would seem to be poor credit risks. For these people, getting a home mortgage should be nearly impossible.
But, a recession does strange things and turns some assumptions on their heads. It turns out the the lower end of the real estate market is getting so cheap that buyers can pick and choose an incredibly large inventory which, in many cases, sellers have to dump at any price.
According to the AP, "First-time buyers are much more flexible in entering the market because they aren't concerned about selling an existing home," National Association of Realtors Chief Economist Lawrence Yun said in a statement. Good point. Most people can't sell their current homes. They won't be in the market for a new one at all. Because of that, dynamic first-time buyers represented 41% of all real estate transactions in 2007.
There is a bit of hidden good news in the NAR analysis. First-time home buyers have a "plentiful" supply of unusually inexpensive homes and an unprecedented opportunity to negotiate on price. As the "retail value" mid-priced and higher-priced homes continues to drop, buyers will come back into those markets as well. Some of the opportunities will just be too good to resist.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
11-09-2008 @ 10:46PM
Iridium said...
The problem with being a first time home buyier is that you don't have the capital required to put the required deposit down on a house. This relegates you to higher interest rates and other programs that put you into a debt trap hard to escape from.
In the current climate many first time home buyers are locked into high payments that could be mitigated by increased equity, however that is an impossibility at the current time.
Young people are also at the mercy of a very competative job market that could cause them to need to change locales many times over a few years. The debt trap from a high interest mortage in a declining market would ruin any chance at success for many people.
That is the market we are in and it isn't going to change soon. There just are not enough buyers for the current inventory of homes.
Any person that takes out a 7.5% interest 30 year loan with 10 percent down is an idiot. In another five years we will have another round of foreclosures that will make the current crisis look like paradise.
The solution is to offer government backed 3% 30 year loans to first time homebuyers with 5% down. If that were offered I would buy a home tommorow. As it stands now I would like to buy a home but I am not risking my financial future to enrich a bank.
11-10-2008 @ 10:39AM
beanspants said...
Any person that takes out a 7.5% interest 30 year loan with 10 percent down is an idiot.
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Child, grow up.
A 7.5% rate is historically about average. 3% is inflation, and people who choose to be renters should not have to subsidize your lifestyle because you are unable to save a few bucks.
12-03-2008 @ 12:29AM
Jay Valento said...
There are plenty of FHA loans with 3% down that first time buyers can take advantange of to purchase real estate. Banks are loaning money. Now, is an excellent time to buy a home or condo.
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