Thursday, November 12, 2015


The Wall Street Journal reported that despite the strong housing market this year, there has been a decrease in the number of first time home buyers.  In 2015, first time home buyers accounted for only 32 percent of all purchasers, a percentage that has been decreasing over the past three years.  This is the lowest level of first time home buyers since 1987.

A big factor in the decline has been the sharp increase in home prices.  Higher home prices mean higher down payments for first time home buyers, who are finding themselves cash strapped by higher monthly rents and student loan payments.  As these monthly payments increase, potential home owners are able to save less each month for a down payment on a home.  With higher down payments needed for higher priced homes, and monthly savings goals falling flat, it will take first time home buyers longer to enter the housing market.

Furthermore, as the Federal Reserve looks to raise interest rates this year, the cost for first time home buyers to purchase a home and carry their mortgage will only increase.

These trends could impact D.C., Maryland and Virginia homeowners in two potential ways.  First, it could cause home prices to decline.  Fewer first time home buyers will cause a ripple effect in the housing market which may lead to lower prices for all homeowners.  Second, it could also lead to more pressure to reduce lending standards and income requirements, moves that helped contribute to the nation's housing crisis and a tightening of lending standards.  As housing prices soared in the early-2000s, lenders had to become more creative so that their clients could afford to buy new homes.  At that point, among other programs, we saw the introduction of 100 percent financing, and interest only and negative amortization loans.

With substantially more government regulation over the industry today, I would not expect a loosening of lending standards and would predict that housing prices will hold steady or decline in the near term.  As a result, an already cool real estate market may become frosty over the winter if the number of first time home buyers continues to decline.

Bruce Stern, Esq. (with Keera Gilbert)