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First-time homebuyers are too few in number to absorb inventory overhang

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The number of first-time homebuyers coming to market this spring is not enough to absorb the amount of housing inventory on the market. The percentage of first-time homebuyers searching for a property fell to 35.7% in April, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey. First-time homebuyers comprised 43.4% of the demand market in April 2010, when the homebuyer tax credit was in place. Research Director for Campbell Surveys Thomas Popik said while there are still a "normal" number of first-time homebuyers searching for a place to live, the number of available homes is causing a demand gap. "The normal proportion of first-time homebuyers is about one-third of the market and that’s where we are now," said Thomas Popik, research director for Campbell Surveys. "Unfortunately, that’s not enough demand to absorb the excess supply from homeowners defaulting on their mortgages." First-time homebuyers absorb housing inventory, as opposed to current homeowners who trade in their property for a another one, thereby sustaining the supply level. According to the survey, the gap between first-time homebuyers and distressed property supply climbed to 12% in April, compared to just 3.5% in the year prior. And, the housing inventory is at a five-month high, according to a report from the Federal Reserve Bank of Cleveland. The report also laid out data that found sales are down 12.6% compared to 2010 (see chart below). "As a result, we expect existing home sales for the spring/summer buying season to be significantly below last year and that will put continued downward pressure on home prices," Poptik said. This circumstantial "deficit" of first-time homebuyers is putting a dependence on investors to buy up distressed properties. Investors accounted for 23% of sale transaction activity in April, the Campbell/IMF survey found. This figure is up from 18% one year earlier. Investors are also buying the properties first-time homebuyers are not, as 45% of foreclosed properties were dubbed damaged or inhabitable in April's survey. The Campbell/IMF Distressed Property Index, which measures the health of the U.S. housing market, fell slightly to 47.7% during the month from 48.6% in March. Write to Christine Ricciardi. Follow her on Twitter @HWnewbieCR.

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