First-time homebuyers are declining nationwide. Surveys indicate first-time homebuyers make up 31-35% of all buyers, down from a normal figure of 40%.

First-time homebuyers are decreasing due to:

• the increased cost of FHA financing;
• lender uncertainty about forthcoming regulatory changes; and
• competition with speculators.

Lenders who have been successful at increasing their first-time buyer clients have used educational outreach programs to introduce this population and their agents to first-time buyer programs.

first tuesday insight

This same trend is occurring in California, as buyers consistently put off their first home purchase. Evidenced by a recent first tuesday poll, the average age of first-time homebuyer clients is now 30-35 years, according to 37% of 147 voters. The typical age has been 25-35 years. 33% of voters claimed the average first-time buyer is even older, at 35-40 years.

First-time homebuyers will continue putting off their first home purchase until the economy begins showing signs of a steady recovery. Birth rates reflect the same conditions.

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Will first-time homebuyers save California’s homeownership rate?

The Federal Reserve (the Fed) has tried nearly every trick in the book to jump start the economy, yet homebuyer demand remains low. Worse, the current fiscal cliff debacle has — unsurprisingly — inspired a lack of confidence across all economic sectors.

But there is at least one positive to the economy agents can use to spur first-time homebuyers to act now. Interest rates are at an all-time low, meaning increased buyer purchasing power at levels never before seen in the U.S.

With the same monthly payment today, a buyer can qualify for a more expensive home than one year ago. This is because less of their monthly payment goes toward interest. Rates will remain at the zero-bound floor, unable to drop further, until 2015. Then interest rates will gradually rise for 20-30 years.

So, encourage buyers to take advantage of high buyer purchasing power now before rates rise. Hopefully the eventual increase will be small enough to avoid a sharp decrease in home prices, but big enough to keep prices from rising. These economic conditions existed for nearly 20 years after the end of our last financial crisis in 1947, and in Japan following their financial crisis in 1989.

Related article:

Buyer purchasing power determines home prices

Consider the fact that buyer/occupant demand continues to languish due to a lack of jobs. In this economic climate, inspiring buyers to take advantage of low rates will be a challenge for both agents and lenders.

This means aggressive marketing to would-be renters. Find the buyers who are qualified but lacking in confidence. Confidence is inspired via education. What’s needed is a clear explanation by agents of why it is so very important to take advantage of these rates now.

Related article:

Turn renters into owners by demonstrating homeownership’s savings

Re: Fewer First-Time Buyers from The New York Times