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Lending

Barclays: 3 reasons the first-time homebuyer will return

One major hiccup remains

May 1, 2014
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Demand for homes is stalling according to the most recent report on mortgage applications from the Mortgage Bankers Association.

However, it may not last forever, according to analysts at Barclays (BCS).

Equity researcher Stephen Kim just released an in-depth report titled: The Return of the First-Time Buyer.

In it Kim gives three solid reasons potential homebuyers could enter the market.

However, there remains a major barrier, he adds.

HousingWire gives a snapshot of Kim's findings in the list below (the words are his).

First the three positives:

1. Job growth is reaching an important threshold for improved household formation

The cumulative number of jobs created over the past several years has now reached the point where each new job will drive greater household growth.

2. Credit availability starting to loosen

 Lenders' willingness to extend credit to borrowers in the entry-level "sweet spot" of 600-700 FICOs is gaining momentum.

3. Affordability still favorable

 Buying a home is still ~20% cheaper than renting, and affordability is unlikely ever to be better, given rising interest rate and home price trends.

And here's the BIG negative:

1. Student debt remains a problem

Our analysis reveals that burgeoning student debt is the thorniest problem for the industry, particularly in light of new QM regulations.

"While the recent slowdown seems to have caught many observers by surprise, we have been expecting a 'mid-cycle correction' to emerge in FY14 since early last year. Thus, this period of slower growth is largely consistent with our view for how the housing market will recover back to normalized levels by 2016," Kim predicts.

"Overall, we expect a recovery in entry-level buying to be the key theme in the homebuilding industry this year, and we continue to recommend D.R. Horton (DHI) as our top pick among the homebuilders," he said.

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