First-time Home Buyers Struggle to Buy

By Ann Poorboy, Contributor

A starter home is almost a right of passage for America’s emerging adult population. However, it’s more difficult today for first-time home buyers to purchase their first home. Many hopeful home buyers are struggling to participate in the American Dream. According to the National Association of Realtors (NAR), only 29% of recent sales could be attributed to first-time buyers.

Some of the reasons buyers are struggling, are increased FHA fees, student loan debt, a seller’s market, and having to compete with investors for more affordable properties.

According to American Student Assistance, the average college graduate owes nearly $30,000 in student loan debt. This debt load is keeping many young Americans out of the housing market. Nearly three out of four young Americans have hampered their ability to buy a home since it throws off their debt-to-income numbers.

The pool of smaller, affordable houses is diminishing as developers focus on mini-mansions and investors are buying up smaller homes to renovate and rent. Thursday, CoreLogic released data showing that investors accounted for 20% of lower priced homes, The trend started in 1999 and has nearly doubled in the past 20 years.

Linda Morris, a Realtor in the fast-growing Raleigh-Durham, North Carolina had this to say, ” It’s true. It’s very difficult for young buyers with an FHA loan (only 3/5% down) to compete with the all cash and 20% down buyers. Plus, because almost all of the affordable housing is going in multiple offers, the FHA buyers are at a disadvantage because they are subject to the FHA appraisal rule. The FHA appraisal stays with the property for 6 months so that anyone else using an FHA loan goes for the house that didn’t meet appraisal – they will see the appraisal value and they will have the same appraisal issues. This is why sellers are discounting the FHA buyers and going for the investors (cash) and older buyers (20% down). It’s really hard for first time buyers in a seller’s market.”.

Traditional real estate investors have been a big part of the affordable home market. However, inspired by shows on HGTV, many smaller investors are emerging and representing nearly 60% of the investor purchases. As investors snap up more properties, we’re seeing pricing increase most everywhere. This is also bolstered by increasing development in many metropolitan areas.

In 2018, eight of the top 10 metro areas with the highest investor purchase rates were in the Eastern half of the U.S., CoreLogic said. The top markets for investors were Detroit, where they accounted for 27% of sales, Philadelphia at 23.3% and Memphis at 19.7%. Some cities with the least investor activity are in Ventura, Calif., and Boise, Idaho, at 4.8% each, and Oakland, Calif., at 5.1%. Source: NPR

If first-time buyers are less capable of buying, we will have an unusual situation where we are in a great economy in 2019, but where home ownership will be underperforming. So, for first-time home buyers, follow this great advice from Dave Ramsey:

Make sure your first home is a blessing and not a curse by laying the proper financial foundation first. Source:

1. Kick Sallie Mae—and any other debt—to the curb.

2. Stockpile three to six months of expenses in your emergency fund.

3. Save up enough cash to put 10–20% down on your home.

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