In a real estate market that is still very much struggling to recover from mortgage derivatives crash of 2008, new buyers are staying away in droves. According to one report -
“First-time buyers accounted for 26 percent of purchases in January, down from 27 percent in December and 30 percent in January 2013. This is the lowest market share for first-time buyers since NAR began monthly measurement in October 2008; normally, they should be closer to 40 percent.” Source: National Association of Realtors®
A number of factors may be in play here. Young adults are burdened by loans they took out to pay for their education. Often considered the bedrock of the housing market, first-timers are not stepping up to fill the void left as speculators cool off. The trend has alarmed some housing experts, who suspect that student loan debt is partly to blame. That debt has tripled from a decade earlier, to more than $1 trillion, while wages for young college graduates have dropped.
In areas affected by the tech boom, like San Francisco, Seattle and Manhattan, first-timers are being priced out of the market. Some estimates suggest that young people would need to save for ten years or more to come up with the down payment.
When there was a healthy middle class, relatives often would pony up the down payment or otherwise help their children buy that first home or condo. As the middle class shrinks, however, fewer dollars are available for such bighearted gestures.
First-timers have always provided the stimulus to generate market activity. They buy the smaller, lower priced homes, allowing those sellers to move up to the next level, whose owners themselves buy bigger and better homes. This chain reaction creates jobs for everyone associated with housing, stimulating the economy and creating prosperity. Without a strong cadre of new buyers, the economic recovery will continue to sputter along.