First-time Home Buyers Scared Off?

Home prices have fallen to 2002 levels and mortgage rates are at record lows — so why are the number of first-time home buyers decreasing instead of increasing?

First-time home buyers used to account for about half of all housing sales, but over the past year, they’ve made up only about a third of buyers, according to a recent New York Times article.

"The obstacles facing first-time buyers are big, and it's changing the way they look at home ownership," Dan McCue, research manager at Harvard University's Joint Center for Housing Studies, told The New York Times.

Higher downpayment requirements, job insecurity, and tougher credit standards may all be holding back first-time home buyers — which tend to be dominated by young professionals. The median down payment for a single-family home in 2002 was 4 percent in nine major metro areas, but now stands at 22 percent, according to Zillow.com.

What’s more, while mortgage rates are hovering at record lows, fewer buyers are able to qualify. About one-third of households have credit scores that aren’t good enough to qualify for a mortgage. The median required credit score from FICO Inc. has increased from 720 in 2007 to 760 currently, according to The New York Times article.

Source: “Home Market Being Held Back by Wary First-Timers,” The New York Times (Nov. 30, 2011)