More First-Time Buyers Entering the Market

The 2008 National Association of Realtors reveals that the number of first-time buyers have risen as a percentage of the market share and they plan to own their homes longer than buyers in the past.

Lawrence Yun, NAR chief economist, said a higher share of first-time buyers makes perfect sense, and it’s a trend he expects to grow.

“First-time buyers are much more flexible in entering the market because they aren’t concerned about selling an existing home,” he said. “Given low home prices, plentiful supply, and affordable interest rates, it’s been an optimal time for entry-level buyers with a long-term view.

“Considering the temporary first-time buyer tax credit and improvements to the FHA loan program, we expect stronger entry-level activity as the flow of credit improves that, in turn, should free more existing owners to make a trade in 2009.”

The number of first-time buyers rose to 41 percent from 39 percent of transactions in last year’s survey and 36 percent in 2006. “Although modest, this is a meaningful gain for the 12-month period ending at the close of June, and more recent independent data show a stronger uptrend in first-time buyers who are helping to reduce excess inventory,” Yun said.

According to the NAR study, the median age of first-time buyers was 30, down from 31 in 2007, and the median income was $60,600. The typical first-time buyer purchased a home costing $165,000 and plans to stay in that home for 10 years, up from seven years in 2007.

The median down payment by first-time buyers was 4 percent, up from 2 percent in 2007; the number purchasing with no money down fell from 45 percent in 2007 to 34 percent in the current survey.

“The study covers transactions through the middle of 2008, so we can assume the down payment numbers have shifted recently because credit tightened and no-down payment loans all but disappeared around the close of the survey,” Yun explained.

Of first-time buyers who made a down payment, 69 percent used savings and 26 percent received a gift from a friend or relative, typically from their parents. Another 7 percent received a loan from a relative or friend, while 16 percent tapped into a 401(k) fund, stocks or bonds. Ninety-two percent chose a fixed-rate mortgage.

The percentage of buyers who purchased a home in foreclosure jumped to 6 percent of transactions in the 2008 survey from 1 percent in 2007. Another 38 percent of buyers considered purchasing of a home in foreclosure but did not, primarily because they could not find the right home.

Commuting costs factored greatly in neighborhood selection, with 41 percent of buyers saying they were very important and another 39 percent saying transportation costs were somewhat important.

“Since fuel costs began rising in the latter part of the survey period, it’s reasonable to assume they’ve become even more important to home buyers since,” Yun said. “We’ve heard from our members that commuting costs are playing a bigger role in buyers’ decisions.”

Environmentally friendly features also were important, cited by 90 percent of buyers. Heating and cooling costs were of primary importance, followed by energy efficient appliances and energy efficient lighting.

The study found that 81 percent of sellers used full-service brokerage, in which real estate agents provide a range of services that include managing most of the process of selling a home from listing to closing.

Nine percent chose limited services, which may include discount brokerage, and 9 percent used minimal service, such as simply listing a property on a multiple listing service. All of these types of services are provided by REALTORS as well as non-member agents and brokers. The results are identical to findings in 2007 and comparable to findings in 2006.

Primarily, sellers want agents to price their home competitively, market the property, find a buyer and sell within a specific timeframe. Home buyers are consistent in their expectations of real estate agents.

Buyers thought the most important agent services are helping find the right house, and negotiating sales terms and price. Because agents often are chosen based on a referral or were used in a previous transaction, two-thirds of buyers contacted only one real estate sales associates in the search process.

Sixty-one percent of buyers are married couples, 20 percent are single women, 10 percent single men, 7 percent unmarried couples and 2 percent other. Twenty-six percent are nonwhite, 9 percent were born outside of the United States, and 4 percent primarily speak a language other than English.

Seventy-eight percent of all respondents purchased a detached single-family home, 9 percent a condo, 8 percent a townhouse or rowhouse, and 5 percent some other kind of housing.

Fifty-five percent of all homes purchased were in a suburb or subdivision, 17 percent were in an urban area, 16 percent in a small town, 10 percent in a rural area, and 2 percent in a resort or recreation area. The median distance from the previous residence was 12 miles.

The biggest factors influencing neighborhood choice varied by household type, but overall they were quality of the neighborhood, cited by 62 percent of respondents; convenience to jobs, 51 percent; overall affordability of homes, 41 percent; and convenience to family and friends, 38 percent.

Other factors valued highly by consumers include quality of the school district, 27 percent; convenience to shopping, 27 percent; and neighborhood design, 24 percent.