Q. I want to buy my first house. Are first time buyers being shut out of the housing market?
A. Congratulations on getting into the housing market. Don’t give up! In the current market it is difficult for the first time buyer. They are the only group of buyers whose share of home purchases has not increased over the last several months. Typically 40% of buyers are first timers. Now they are less than 30%.
Financing is a problem for them. 50% of loans for first timers are FHA loans where they only have to put 3.5% down. Consequently, they have to pay mortgage insurance to qualify for such a low down payment. Recently the mortgage insurance premiums have increased many basis points. Some buyers have been priced out. In multiple offer situations, some sellers don’t want to look at an FHA offer. There is steep competition from investors with cash and people with high down payments.
These days FHA loans are fine loans. There is much misinformation about them. They can close in a customary timeline and the appraisals are just as good as a conventional loan.
As a first time buyer, try to be patient. Have your Realtor present you and your offer in a positive way. Most sellers care about their neighbors. The agent should demonstrate, perhaps through a letter, as I’ve suggested before, about what a great addition you would be to the neighborhood.
Q. Do you think we are experiencing another housing bubble?
A. I certainly hope not. My other answer is that I really don’t know. What I worry about is affordability. I know many buyers who have been priced out of the market. Investors are not bidding on as many properties as they use to either. Prices have gotten too high for them to fix up, resell and make a profit.
If the buyer pool gets smaller there will be less demand. If the supply gets larger and the demand gets smaller, prices might go down. If interest rates go up less people will be able to afford their loan. Rates can’t stay this low forever. I do expect prices to level off. I hope after that we can resume normal appreciation which is 1-6% a year.
The reason we might not have a bubble is because current buyers are qualified for their loans. Money is tight. We don’t have the easy loans we had in the last “hot” market.
There is something I have noticed about many people. They seem to think that everything, good or bad, is permanent. If prices are going up they will continue to go up. If prices are going down they think they will be on an ongoing decline. The truth is, nothing is permanent. Everything is temporary.
Real Estate will never be as black and white as people would want.