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5 Reasons that First-Time Homebuyers Are NOT Returning Anytime Soon

by Peter Thomas Ricci

First-time homebuyers have been missing in action for some time now, and it’s unlikely that they’ll return any time soon.

It’s no news to anyone – especially consistent readers of our news coverage – that first-time homebuyers remain a relatively rare sighting in today’s housing market, and they continue to be a main reason for housing’s sluggish 2014 performance.

The big question on everyone’s mind is when first-time homebuyers will finally return to housing, but we think such a development will occur later, rather than sooner. Here are five reasons why:

1. First-time buyers really are MIA – Before we get into specifics, we should be clear that we’re not parsing our words when we say first-time homebuyers are missing in action. In the new home market, first timers account for just 16 percent of purchases, which is down from the 25-28 percent average between 2001 and 2007; meanwhile, they account for just 29 percent of existing-home sales, down from the historical average of 40 percent.

2. They’re hurting economically – According to the Census Bureau, from 2007 to 2012, the income for Americans aged 25 to 34 dropped by 9 percent. Excluding people younger than 25, that was the biggest decline of any income group, and when you factor in the mounting student loan debts that the demographic is also grappling with, you don’t necessarily have the ingredients for a first-time homebuyer.

3. Homes are more expensive – Also complicating factors is rising home prices, which are great for homeowners looking to gain equity and sell, but bad for income-strapped consumers looking to buy. Existing homes alone are up 5.2 percent in the past year, according to The Wall Street Journal, while new home median price, at $275,800, is at one of its highest levels ever recorded.

4. A nation of renters – Because of all those aforementioned factors – economic adversities, student loan debts, soaring prices – economists now believe that younger Americans will rent for longer periods of time than previous generations.

5. Don’t expect a quick turnaround – And finally, those lingering economic forces also guarantee a lumbering recovery. Mark Zandi, the chief economist at Moody’s Analytics, explained to the Journal that given the experiences of younger consumers, we should expect a “slow build” in the first-time homebuyer market, not a quick turnaround. “They’ve had a tough financial time,” Zandi said. “I’m sure they’re psychologically scarred by the economic roller-coaster of the last 10 years.”

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