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HousingPulse Survey Finds First-Time Homebuyers Missing Out

by Reno Manuele

housingpulse-survey-campbell-surveys-first-time-homebuyers-missing-housing-recovery-fha-financing-tight-financing-premiums-insurance-fund

The rise of non-distressed property sales has been one of the most encouraging signs for the housing recovery, but a HousingPulse Survey suggests it’s not benefiting first-time homebuyers.

By Peter Ricci

First-time homebuyers have always played an integral role in the housing market, but the latest HousingPulse Survey from Campbell/Inside Mortgage Finance has found that they may be missing out on the housing recovery.

After surveying 2,500 agents nationwide, the HousingPulse Survey found the market share of first-time homebuyers was 34.7 percent in October, which is not only down from the 37.1 percent of June but the lowest market share ever recorded by HousingPulse.

HousingPulse Survey – First-Time Homebuyers MIA

The reasons for the the decline in first-time homebuyers, the HousingPulse Survey found, derives from the return of non-distressed property sales to the housing market:

  • Non-distressed property sales made up 64.7 percent of home purchases in October, which is the highest share of sales since the HousingPulse Survey began in 2009.
  • At the same time, first-time homebuyers did not see their share of non-distressed property sales increase over the past five months, the only such group of buyers to experience such a trend.
  • The share of first-time homebuyers in the non-distressed market fell from 38.7 percent in June to 33.6 percent in October, while shares rose for current homeowners (50 to 54.2 percent) and investors (11.3 to 12.2).

There is a great irony to this setback; for years, distressed properties (short sales and REOs) made up disproportionate chunks of the existing-home market, and housing analysts yearned for the return of non-distressed sales to balance out the housing inventory and usher in a housing recovery…so what’s to explain the absence of first-time homebuyers in this party?

FHA Financing and the First-Time Homebuyer Decline

As the HousingPulse Survey explains, the higher price tags associated with non-distressed homes have squeezed out first-time buyers, but the biggest influence on their falling market share is changes to FHA financing.

Half of first-time homebuyers, explained Thomas Popik, the director of Campbell Surveys, use FHA financing, but in an effort to shore up its finances and replenish its depleted insurance fund, the FHA has been tightening its underwriting standards and raising its premiums. And in a bonus question on the HousingPulse Survey, agents did say that higher premiums limited first-time homebuyer purchases.

The FHA just announced an additional 10-basis-point uptick to its premiums in early 2013, but perhaps this can be seen more as an opportunity for private financing to return to housing, given the first-time buyers who are still interesting in homeownership?

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