US first time buy­ers strug­gling as prices rise and sup­ply fails to keep up with de­mand

Financial Mirror (Cyprus) - - FRONT PAGE -

Prices are ris­ing, de­mand is up and first time buy­ers are strug­gling to get on the hous­ing lad­der. An ev­ery­day part of Bri­tish life you might think, but this sce­nario is from the United States.

The lat­est re­search and in­dex fig­ures shows that first time buy­ers are fac­ing stiff com­pe­ti­tion as they sim­ply can­not af­ford to buy. In par­tic­u­lar those who have stu­dent debt af­ter grad­u­at­ing are in­creas­ingly un­able to af­ford to buy a home.

Fig­ures from prop­erty firm Zil­low show that so called en­try level prop­er­ties which are typ­i­cally the kind of home a first time buyer would pur­chase have in­creased by 8% in the last year, twice as fast as more ex­pen­sive prop­er­ties.

The data also shows that there are far fewer en­try level homes on the mar­ket with sup­ply in this sec­tor down by 9% year on year.

It means that in the cur­rent hous­ing mar­ket in the United States buy­ers look­ing for the most ex­pen­sive homes will find slashed prices, more op­tions and less com­pe­ti­tion. It’s a much dif­fer­ent story for first time buy­ers, who will be up against ris­ing prices, low in­ven­tory and tough com­pe­ti­tion, with homes sell­ing over ask­ing price in many of the na­tion’s hottest hous­ing mar­kets.

So it should come as no sur­prise that new re­search from the Na­tional As­so­ci­a­tion of Real­tors (NAR) has found that the vast ma­jor­ity of would be first time buy­ers in the United States be­lieve they can’t af­ford to buy be­cause of stu­dent debt.

Some 71% of non-home own­ers re­pay­ing their stu­dent loans on time be­lieve their debt is ham­per­ing their abil­ity to pur­chase a home, and slightly over half of all bor­row­ers say they ex­pect to be de­layed from buy­ing by more than five years.

Lawrence Yun, NAR chief econ­o­mist, said that the sur­vey find­ings bring to light the mag­ni­tude stu­dent debt is hav­ing on the hous­ing mar­ket. He pointed out that while ob­tain­ing a col­lege de­gree in­creases the like­li­hood of sta­ble em­ploy­ment and earn­ing enough to buy a home, many grad­u­at­ing with this debt are putting home own­er­ship on the back­burner in part be­cause of the mul­ti­ple years it takes to pay off their stu­dent loans at an in­ter­est rate that’s of­ten­times nearly dou­ble cur­rent mort­gage rates.

These af­ford­abil­ity is­sues come at a time when ex­ist­ing home sales in the United States in­creased in May to their high­est pace in al­most a decade and me­dian sales prices reached an all-time high.

All ma­jor re­gions ex­cept for the Mid­west saw strong sales in­creases last month, the NAR fig­ures show. Sales are now up 4.5% from May 2015 and are at their high­est an­nual pace since Fe­bru­ary 2007. But the share of first time buy­ers was 30% in May, down from 32% both in April and a year ago. And this is de­spite the US see­ing a sus­tained pe­riod of ul­tralow mort­gage rates.

Yun ex­plained that sales are be­ing kept up by home own­ers re­al­is­ing the eq­uity they’ve ac­cu­mu­lated in re­cent years and fi­nally de­cid­ing to trade-up or down­size. Re­peat buy­ers us­ing the pro­ceeds from the sale of their pre­vi­ous home as their down pay­ment are mak­ing up the bulk of home pur­chases right now.

There is also a lack of sup­ply. While to­tal hous­ing in­ven­tory at the end of May rose 1.4% to 2.15 mil­lion ex­ist­ing homes avail­able for sale, it is still 5.7% lower than a year ago. New home con­struc­tion has crept but it is not keep­ing up with de­mand and Yun be­lieves this is also se­verely limiting choices and push­ing prices out of reach for plenty of prospec­tive first time buy­ers. Choice is par­tic­u­larly lim­ited in the af­ford­able homes sec­tor.

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