Current homeowners are finally moving up, and distressed
sales are making up less of the overall market—all signs of much-needed
improvement in housing. Statistics are showing improvement in many categories, but this may not point to a good sign for all would be buyers.
Current homeowners accounted for 54 percent of October’s
non-distressed market, up from 50 percent in June, according to a new survey by
Campbell/Inside Mortgage Finance.
This as the share of non-distressed sales surged to 64.7
percent, up from 55.7 percent as recently as February.
Unfortunately, first-time home buyers are seeing just the
opposite, largely left out of this surge in sales and prices. Their share of
the market, usually up in the 40 percent range historically, fell to 34.7
percent in October, the lowest in the Campbell/IMF survey’s three-year history.
The National Association of Realtors put their share even
lower, at 31 percent.
Either way, they are the only group of buyers that have not
seen their share of non-distressed home purchases rise over the past five
months. The mortgage of choice for these buyers, FHA-insured loans, are
increasingly tough to obtain.
“Financing of first-time homebuyers with low down payments
threatens to become a significant problem in the U.S. housing market,” wrote
Thomas Popik, research director for Campbell Surveys. “Fifty percent of
first-time homebuyers use FHA financing, but FHA insurance premiums are
increasing and underwriting is becoming even 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.”
Real estate agents answering this latest survey also noted
that the recent hike in FHA mortgage insurance premiums is hitting first-time
buyers harder because some sellers are refusing to accept offers that include
FHA financing. Adding insult to injury, the FHA, after reporting a major
shortfall in its insurance reserve funds, announced it would raise premiums yet
again, another 10 basis points early next year.
Lower priced, distressed properties, like foreclosures and
short sales, would seem like the best answer for first time buyers, but hungry,
all-cash investors are proving to be too much competition. Investors purchased
one fifth of all homes that sold in October, up from 18 percent the previous
month, and all-cash buyers (largely investors) made up 29 percent of all sales,
according to the Realtors
This is why, despite increasing household formation, rental
occupancies continue to fall and rents to rise. Would-be first time home buyers
are either choosing or are forced to rent.
Is there an alternative for the first time homebuyer?
Yes there is! MarketWatchRealEstate.com has partnered with a local lender to offer an alternative to FHA that doesn't require a big down payment, in fact it doesn't even require a down payment. Details on this program are available here.