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August 22, 2014

Are First-Time Home Buyers Being Shut Out?

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Are First-Time Home Buyers Being Shut Out?

First-time home buyers are a shrinking pool, making up less of the housing market. Typically, they represent about 40 percent of buyers, but today their numbers have dropped to about 31 percent of buyers, according to housing data by the National Association of REALTORS®.

First-time buyers are the only group of buyers whose share of home purchases have not increased over the last five months, CNBC reports. 

FHA mortgages, with low downpayment requirements, are a popular choice among this group of buyers, but the recent rise in FHA mortgage insurance premiums is hampering first-time home buyers. Some sellers are also even refusing to accept offers from first-timers that include FHA financing, real estate agents report. What's more, FHA announced it would raise premiums again next year, another 10 basis points. 

“Financing of first-time home buyers with low down payments threatens to become a significant problem in the U.S. housing market,” Thomas Popik, research director for Campbell Surveys, recently wrote. “Fifty percent of first-time home buyers use FHA financing, but FHA insurance premiums are increasing and underwriting is becoming more strict. Private mortgage insurance has started to fill the gap, but the long-term status of private mortgage insurance is in question pending the publication of the Qualified Residential Mortgage regulation resulting from Dodd-Frank.” 

First-time buyers also face steep competition when targeting lower priced properties. Investors have flooded the market, snagging lower priced properties in all-cash deals that first-time buyers would typically be drawn to. 

Source: “Housing Recovery Is Leaving Behind First-time Buyers,” CNBC (Nov. 26, 2012)

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