Hat tip to shadash for sending in this wsj.com article:
Here are excerpts:
Advocates of looser lending standards may point to the NAR’s latest survey to highlight problems on the mortgage market. But it’s worth noting that the share of first-time buyers didn’t increase during the housing bubble, when it was too easy to get a mortgage. That’s because home prices were rising. The share of first-time buyers fell to 36% in 2006, at the peak of the bubble, from 40% in the prior three years.
And even though credit was much tighter in 2009 and 2010, the share of first time buyers jumped to 47% and 50%, respectively. Lower home prices helped. So, too, did an $8,000 federal tax credit for first-time buyers, which expired in June 2010.
Home prices have been rising for the last two years—and first-time buyers have accounted for a falling share of sales in that time.
Rising prices have fixed a number of ills ailing the housing market. They make consumers more willing to purchase homes or fix up the ones they live in. They make it easier for owners to sell if they get into trouble on their mortgage, limiting foreclosures.
But rising prices also make homes less affordable, especially for the marginal buyer, which in many cases is also the first-time buyer.
The NAR survey also found that people are staying in their homes longer than in the past. The median age of tenure–that is, the amount of time a typical homeowner stays in one house–rose to 10 years in the most recent survey, from six years in 2007.
The typical first-time buyer last year was 31 years old, while the typical repeat buyer was 53.
It’s not just the first-timers who are getting shut out – there are others too:
1. Those with average incomes.
2. Those with above-average incomes who are picky.
3. Self-employed and others who don’t have beefy tax returns.
4. Anybody with bad credit.
Yet the affordability has declined rapidly – from CAR:
CAR’s Housing Affordability Index – which tracks the percentage of households that can afford a median-priced, single-family detached home assuming current interest rates and 20% down – fell from 33% in the first quarter of 2014 to 30% in the second quarter, a 26% decline from a peak of 56% in early 2012.
While home buyers needed to earn an annual income of $56,320 to purchase the median-priced house two years ago, today they need an additional $37,270, or $93,590 total annually, to qualify.
The $93,590 annual income is needed to purchase the state’s median-priced home of $457,140. Around NSDCC, the current median price is over $1,000,000!
Comparing the first nine months of 2014 to the frenzied first nine months of 2013, the NSDCC detached-home sales have dropped 15% this year – which is still pretty strong if you ask me. We live in an affluent area!
By this time next year we should know if we have enough ready, willing – and able – buyers to keep prices at these levels or higher.