Here’s Why There Are No First-Time Home Buyers

An vitally important segment of the housing market is missing – and they aren't coming back

Jun 8, 2014 at 3:00PM


Spring has sprung, but the budding housing recovery hasn't blossomed. Sales of existing homes in March were 7.5% lower from the previous year, and analysts from Morgan Stanley reduced their expectations of existing home sales for the spring season late in April.

Why is the housing market in such a slump, six years after the crash? Though factors such as a brutal winter and a lack of investor activity were cited, the biggest problems analysts saw were the still-high percentage of underwater homeowners, and a lack of viable first-time home buyers. 

The last part is spot-on, it seems: there is a real dearth of first-time buyers populating the market right now, and things are definitely not looking up. Normally 40% of the housing market, this group now constitutes a paltry 28% of buyers. And the primary group associated with that market, the Millennials, is staying away in droves. 

Why has the first-time home buyer disappeared? Here are two huge reasons – neither of which looks surmountable any time soon.

Student debt is (still) hobbling young buyers
The enormous amount of student loan debt carried by college graduates has played a large role in the slow recovery of the housing market, and that situation is essentially unchanged. Last spring, the Federal Reserve Bank of New York found that the rate of home ownership among 30-year-olds with student debt fell below that of their peers who were not similarly burdened.

The FRBNY revisited this issue once again recently, and saw the same situation, with a twist: while young people with student debt still exhibited lower rates of homeownership than those without debt, both groups showed even less participation in the housing market last year than they did in 2012. Worse still, those with college loan debt showed no indications of recovery from this retreat – something that never happened before the Great Recession, since college graduates were previously able to leverage their degrees to ramp up their earnings. 

Affordability is fading
Rising home prices and more stringent mortgage rules are creating a perfect storm for first-time buyers, effectively pricing many out of the market.

The new rules are meant to ensure that only those that can truly afford to repay their loan are granted a mortgage. Since the rules have gone into effect, however, many would-be buyers have found themselves on the verge of purchasing a home only to find that their lender requires a never-ending stream of documentation in order to approve the loan. 

Price increases have become problematic, too, with low inventory being the biggest culprit. New home construction is only about 1 million units annually, two-thirds of what a normal market would be able to support. Existing home sales have been hampered by underwater loans, as well – meaning that current owners cannot afford to sell, pay off their loan, and move into a pricier house. 

A recent Trulia survey points up just how entrenched this problem has become. The poll of Millennials who expressed interest in buying a home indicated that scraping together an acceptable down payment is impossible for many.

Fully half of those without the financial means to do so said that they would ask relatives for a loan, apparently not realizing that this would only add to their already onerous debt load. Still, 65% would not give up their car to save for a down payment, and 20% refused to do without cable. Even 5% said they wouldn't cut back on daily latte drinks in order to save money. 

With these issues pressing upon the still-wobbly housing sector, a full recovery looks far off, indeed.

These top dividend stocks could be one of your best investments
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Amanda Alix has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information