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What’s keeping 1st-time home buyers out of the market?

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Every year the National Association of Realtors (N.A.R.) publishes their annual “profile of home buyers and sellers,” and this years numbers confirm a concerning trend.  For the third year in a row, the percentage of first-time home buyers has declined, reaching a new low of 32% (down 1% from 2014).  Since reporting has begun, the historical average has been 40% and it leaves us theorizing as to what is causing this decline.  As Dr. Lawrence Yun, the N.A.R. chief economist stated:

“There are several reasons why there should be more first-time buyers reaching the market, including persistently low mortgage rates, healthy job prospects for those college-educated, and the fact that renting is becoming more unaffordable in many areas.”

With these factors in mind, the belief is that the percentage of first-time home buyers should be at a much higher level.  So what is causing this decline and what does it mean for the future of home ownership?

The answer seems to lie largely in the amount of debt that these potential buyers are carrying.  “First-time buyers reported that debt (all forms) delayed saving for a down payment for a median of three years,” Yun stated.  Student loan debt, credit card debt, and vehicle loan debt are all major contributors to a buyers inability to save the much needed down payment necessary to obtain financing.  Even with the FHA 3.5% down programs, potential buyers are finding ownership simply out of their reach.  This problem is only worsened in market areas of higher median home values and a trend of increasing sales prices.  In these areas, the amount needed for a down payment is an continuously increasing number that seems to keep moving further and further away.

So where do we move from here?  Home-ownership can be a powerful investment and early ownership can provide a myriad of future opportunities.  One strategy may be to continue a focus on early education regarding the implications of credit debt.  For now, student loan debt seems to be largely unavoidable for those looking to further their education, but other debt areas in the form of credit cards or vehicles can, and should be kept to a minimum if home ownership is a goal.  Future buyers must remain vigilant in the care of their finances and ensure that each financial decision is keeping them on the path towards savings.

2015-HBS-Infographic

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