It’s no secret that the real estate market has slowly recovered from the financial crisis of 2007 and 2008. Between the inability of would-be home buyers to save for an adequate down payment, and the higher qualification standards for mortgages, many first-time buyers have been priced out of the market. Talk about being between a rock and a hard place.
There were a number of factors that led to people’s inability to save for an adequate down payment. Most significant was an unemployment rate in the high single digits (7.5% or higher) for four-and-a-half years (January, 2009 thru June, 2013). Add to that increasing rents and higher student loan debt, and you get a decline in first-time home buyers from 47% in 2009 to just 33% this year.
The Hard Place
As if the rock wasn’t bad enough, the Federal Government enacted sweeping reforms to the mortgage lending industry in response to the underlying cause of the financial crisis – sub-prime mortgages and related securities. Many argue that they overcompensated. But that’s a topic for another day. Suffice it to say that a lot of people, even those who actually could afford mortgages, were frozen out of the housing market because they couldn’t qualify for a loan under the revised standards.
Better Days Ahead
It’s beginning to look like there are better days ahead. The space between the rock and hard place that would-be home buyers have been squeezed between over the past five years is beginning to open up.
Since July, 2009 the unemployment rate has been on a downward trajectory through the mid single digits (between 5.0% and 7.5%). In addition to that, inflation has been below 3% two of the last six years, below 2% four of the last six years, and is on track to be below 2% for 2014. So, with more and more people working and inflation tracking very low, people are better able to save.
But the good news doesn’t end there. There are signs to indicate that qualifying for a mortgage is going to start getting a little bit easier. In a speech delivered by Mel Watt, Director of the Federal Housing Finance Agency, to the annual conference of The Mortgage Bankers Association, he signaled that they could loosen their mortgage underwriting standards, and that Fannie Mae and Freddie Mac will still purchase the loans, without much recourse if the loans turn sour.
This is all good news for home buyers in general, and first-time home buyers in particular because it opens up the real estate market to them. As a result, we should begin to see an increase in the percentage of first timers.