First-Time Homebuyers Disheartened by Stringent Credit

First-time Buyers Having
Trouble Getting Home Loans

By Gene Wright

Troubles getting mortgages are stopping more and more first-time homebuyers from acquiring a home even in the face of extremely affordable home prices in most regions. One serious consequence has been the slowing down of the amalgamation of short sale and foreclosure homes.

The National Association of REALTORSģ latest quarter report shows first-time homebuyers bought just 35 percent of the homes on the market during the 2011 second quarter , depressed from the 2010 second quarter of 46 percent, during the pinnacle of the tax credit for first-time buyers Another Survey also showed the ratio for first-time home purchasers in the real estate market dropped to a low of 35.4 percent for June, losing from the 37.3 percent during May. As the first-time homebuyers closings have reduced, the distressed property inventory has gone up

The HousingPulse Distressed Property Index (DPI) dropped to 44.76 percent during June down from 46.77 percent during May. The gap among first-time homebuyers and distressed property inventory in June was 9.33 percentage points, almost unchanged from the highest 9.43 percentage point rate established in May. One year ago during June 2010, the disparity between first-time homebuyers and the distressed property inventory was only 3.9 percent. Although price reductions this year have created more affordable homes than ever before.

The NAR Housing Affordability Index remained at 176.6 for quarter two of 2011, the third highest record subsequent to quarter one of 2011 and the 2010 fourth quarter. The index quantifies the relationship among median family income, median home price, and home loan interest rates; the greater the index, the more household purchasing capacity. Recordkeeping started in 1970.

So why arenít soft prices energizing sales? I believe itís the fault of the lenders. "With the prices of homes in a wide channel plus historically low mortgage rates, a strong housing affordability environment and rising rents just might stimulate a quicker sales resurgence if banks would only return to the business of making home loans to more credit reliable borrowers,

NAR points out the rising market allocation of all-cash home purchases, an investor activity indicator, as a signal that investors are thumping out first-time homebuyers for foreclosure properties. The of all-cash purchase share was 30 percent for the second quarter, increased from the 25 percent for the quarter two of 2010. Investors, make up the mass of cash purchasers, and made up 19 percent of quarter two transactions, increased from an annual 14 percent.

Nevertheless, the credit noose appears to be tightening on investors also. To acquire and retain distressed property, investors require access mortgage loans or cash. An up to date HousingPulse survey showed that after a solid year of absorbing distraught properties, the investor cash supply is becoming depleted. Leaving first-time homebuyers as the group with the strongest ability to absorb the distraught property inventory. Although first-time homebuyers are increasingly having trouble with qualifying under such strict mortgage underwriting requirements.

Ron Phipps, NAR President says a key to strong housing is access to credit. "Many creditworthy potential homebuyers become frustrated when they realize that as they become ready to buy a home, banks remain risk reluctant," he says. "People with long-range plans, good jobs, and who are disposed to staying well within their income means warrant a chance to realize the American dream of owning a home . When banks go back to normal using safe but prudent lending criterion, housing will again be able to play a role its traditional contribution to economic growth."

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