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Opinion, commentary and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.

The vanishing first-time homebuyer

November 26, 2012

It was only a matter of time before the market learned the true fate of the young, first-time homebuyer who may have a solid credit history and a good job, but lacks a 20% downpayment.

The reality is they are disappearing before our very eyes.

And the type of middle-class borrower that used to help drive new home sales is lost in translation as regulators continue to create a housing market that, while more careful in its future construction, may be more disruptive to the American dream.

If you read reports from Real Estate Economy Watch and Campbell/Inside Mortgage Finance, it seems first-time homebuyers make up less of the market today. In fact, Campbell/Inside Mortgage Finance said its HousingPulse Tracking Survey shows the share of first-time homebuyer purchases now at 34.7%, down from 37.1% in June and the lowest percentage in the survey's history.

Real Estate Economy Watch notes the number of singles buying homes is declining, and the median credit scores for adults in the 25-34 and 35-44 ranges remain below the median scores required by the Federal Housing Administration and the mainstream providers of conventional mortgages.

While married buyers are still able to obtain the credit to access loans in the first-time homebuyer segment, the question is whether other borrowers are stumbling on tighter lending standards and an overregulated mortgage space.

Both sources reporting on this issue this week suggest lending standards are too tight. And at a time when rents are going up, a substantial portion of the first-time homebuyer market is not being served.

Ellie Mae recently noted that credit scores for the average borrower rose in the past year, but mainly due to a declining share of FHA-backed loan business. As FHA loans evaporate more borrowers are forced to turn to conventional loans, which may have tighter standards in general.

First time homebuyers will not find much luck getting a mortgage in the conventional loan space.


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