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First-time buyers move back into the real estate market

March 07, 2009|By JIM WOODARD / Creators Syndicate

First-time home buyers comprise a growing share of today's home selling market. That reflects the strong determination of today's young families to own their own home, even when faced with financial difficulties and a tough real estate market.

During the past year, first-time buyers accounted for 41 percent of all home sales, says a study by the National Association of Realtors. That's up from 39 percent during the previous year and 36 percent in 2006.

As affordability improves, more buyers are deciding this is a good time to purchase a home. But home sales generally remain sluggish, making it more difficult for current homeowners to sell their existing homes, it was noted in an NAR report. Unencumbered first-time buyers are therefore becoming a larger share of today's home purchasers.

The first-time home buyer's tax credit of up to $7,500 is motivating many former renters to acquire a home of their own. The credit is available through June 2009. The definition of a first-time buyer is one who has not owned a primary residence for at least the past three years. It should be noted that the credit amount is not a gift from the government. It must be paid back, interest-free over a 15-year period, or whenever the property is resold. Buyers do not have to begin making repayments on the credit until two years after the credit is claimed.

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Some housing groups are pushing for new legislation that would eliminate the requirement to repay the credit amount. The rationale by Congress in setting up the repayment process is that it reduces the effect on the Federal Treasury and assumes that home buyers will benefit from stabilized and, eventually, increasing future home prices.

The recent NAR study revealed that the median age of first-time buyers is 30, down from 31 in 2007. Their median income is $60,600, and buyers plan to stay in their new homes for 10 years, up from 7 years a year ago.

The median down payment was 4 percent of the purchase price, up from 2 percent in 2007. "We can assume the down payment numbers have shifted recently because credit has tightened and no-down payment loans have all but disappeared," Yon said.

Q: What's the prognosis for mortgage interest rates in the near future?

A: The volume of mortgage applications is up and interest rates are down, sharply. And there's more good news for home buyers: Those interest rates will continue to decline, perhaps to 4.5 percent for a 30-year, fixed-rate loan. At least that's the target set by the Treasury Department.

These in-place programs are having an effect on mortgage rates, causing them to drop and encouraging investors to pay more attention to the stocks of banks and homebuilders.

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