Tuesday, February 06, 2007

The Disappearing First-Time Home Buyer

From the Central Valley Business Times:

The bloom was certainly off the rose in 2006 for California home sales, according to figures in a report Tuesday from the California Association of Realtors.

Affordability concerns continued to impact the residential real estate market in California last year, with the share of first-time buyers declining to their second lowest level -- from 30.5 percent in 2005 to 27.1 percent in 2006, according to the report.
The Realtors’ survey also found that the share of buyers who used a second mortgage climbed from 38 percent in 2005 to 43 percent in 2006, more than triple the percentage since 2001 and the highest percentage since 1982.

The use of alternative loan products also registered a sharp increase. "Home buyers with zero-down payments increased significantly from 4.5 percent in 2000 to 21.1 percent in 2006," says Leslie Appleton-Young, the chief economist for the Los Angeles-based association. "Two out of five first-time buyers made a zero-down payment on their home purchase, while just one in 10 repeat buyers purchased their home with no down payment," she says.
The median down payment declined 8.8 percent from $80,000 in 2005 to $73,000 in 2006, despite an increase in the median home price. This was the first time since 1995 that the median down payment dropped. The median down payment for first-time buyers decreased from $25,000 in 2005 to $10,000 in 2006, while the median down payment for repeat buyers decreased from $119,000 to $100,000.


Real said...

Well, hold on here for a second. These stats must be wrong as we all know everyone that bought a home in the last 3 years used $0 down and an interest only loan.

Let's dig a little deeper to see who could be in trouble here:

First time buyers:
27% of buyers and 40% no downpayment = 10% of total new home buyers. Of the other 60% of first time buyers, we truly don't know the average down payment as the median down payment is skewed by 40% making no downpayment at all.

Of the repeat buyers,:
73% of buyers * 10% no down payment = 7.3% of total sales. I think we can all agree the median $100K downpayment provides a pretty good buffer before anyone is under water.

So, we have roughly 17% of homebuyers putting no money down on their house. Given total sales in 2006 of - I don't know - maybe 20K homes, 17% of them may be in trouble which equals 3400 homes which equals about 1.2% of all homes in the area.

Yeah, all those 'sky is falling' types are right on the money - that 1.2% that is at risk will surely drive a 50% price reduction across all homes in the area.

Diggin Deeper said...


Now this guys worth reading!

Patient Renter said...

"Yeah, all those 'sky is falling' types are right on the money - that 1.2% that is at risk will surely drive a 50% price reduction across all homes in the area."

I think you're absolutely right. Who cares if real estate cycles span 11 years and the last, much smaller, bubble led to around 6 years of falling prices. If we've only lost 10% in value so far, I'm with you saying that will be it! True, it's not even been a full year since we went negative, but I'm sure the next 5-6 years will pass quietly. Afterall, 10% times 6 years is less than 50%... right?

Anyways, the 1 trillion in mortgages set to adjust this year are sure to go away. That's probably a false stat anyways, right? I mean, how credible is the Mortgage Bankers Association anyways and it's not like 1 trillion is even that much... right?

I don't know what all the fuss is about. Everyone should just go buy a home. It's not like losing a few hundred thousand is such a big deal, even if the market does keep going down?

(sarcasm off)