The 4 Challenges First-Time Buyers Face in 2016

by Tom Walsh

The housing market is improving, but first-time homebuyers still face challenges


First-time homebuyers have dropped to their lowest share since 1987, and based on numerous reports and analyses by news organizations and industry groups, there are a number of barriers that remain in their way now in 2016.

We’ve taken a look at four key obstacles currently facing first-time homebuyers:

1. Cash Investors Complicate the Process – Even with the easy pickings of foreclosures and short sales gone, cash investors are still competing with first-time homebuyers for the already limited inventory of homes. According to a Wall Street Journal report, 25 percent of home sales nationwide went to investors in October. That’s down from 32 percent in 2012 but still up 8 percentage points from 2000. Cash and investor buying remains far above historical levels in some cities, leaving fewer low-priced homes for first-time buyers.

2. Housing Inventory Below Par – The housing supply was at 1.82 million in January according to the National Association of Realtors. That supply would last four months, below the six-month supply considered normal for the housing market. Additionally, on account of the aforementioned demand from investors, inventory of homes for sale priced below $100,000 fell 11.1 percent between Dec. 2014 and 2015. NAR Chief economist Lawrence Yun noted the small inventory in his report.

“The spring buying season is right around the corner, and current supply levels aren’t even close to what’s needed to accommodate the subsequent growth in housing demand,” Yun said. “Home prices ascending near or above double-digit appreciation aren’t healthy – especially considering the fact that household income and wages are barely rising.”

3. Financial Anchors on Buyers – While home prices have been rising at a staggering rate (up 60.6 since the early 1970s), the median income for first-time buyers has stagnated over the same period, rising 2.9 percent since the early ’70s. Paired with the stagnant wages is an alarming amount of student loan debt, which 41 percent of first-time buyers had in 2015. According to NAR, 31 percent had over $50,000 in debt, and 58 percent delayed a home purchase because of student loans. Student debt creates a significant barrier to entry not seen with previous generations, and has clearly depressed first-time homebuying.

4. Waiting Longer to Buy – According to a NeighborWorks America survey, 43 percent of first-time homebuyers want to wait until they’re married with children to make the jump to homeownership. Right now, only 20 percent of young adults are married with children, which means that first-time homebuyers are waiting longer than previous generations to make their first home purchase. This mindset is becoming more of a stable trend for Millennials, thanks to different expectations – both of themselves and the housing market.

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