First Time Home Buyers Struggling to Enter Market

By Kyle Chezum Updated on 3/11/2011

It wasn't long ago that first time home buyers composed 40% of the home purchase market.  Now, that number has dropped to less than 29%, and that's an amiable estimate.  The real estate industry will likely see still fewer first time home buyers entering the market over the coming year.

This is bad news.  Economists claim that the market cannot fully recover until first time home buyers begin to purchase homes again.  At present, most homes are purchased by investors.  While any purchase is a good purchase, a lasting recovery for the housing sector depends on new buyers entering the market with new capital.  This change will likely be a long time coming.

There are many factors preventing first time home buyers from picking up homes at present and other factors that will make this even more difficult in the future.  First, mortgage lending standards have tightened.  With the subprime market wiped out, lenders are no longer willing to entertain loan requests from borrowers with low credit scores or minimal cash reserves.  Bank doors are shut tight all across the nation.  In addition to this, lenders who do provide mortgages are unwilling to offer little-money-down financing arrangements, which were a main staple of first time buyers.  Lenders expect buyers to put a significant amount of skin in the game, and these days, a mortgage with a low down payment is an exception to this rule.

The government will increase fees as much as 50% in the next few months, making government-backed financing much less attractive to borrowers.  Other proposals currently under consideration by policymakers will likely reduce the total amount of financing available through any given mortgage deal and increase fees for other aspects of the borrowing process.  These increased costs will likely  block more buyers from the marketplace.

The one ray of good news in the market at present is the continued downward plummet of home prices.  Ultimately, if residential real estate values slip low enough, first time home buyers may be able to begin purchasing after all.  Time will tell.