Survey Reflects Tight Credit Conditions

Anaheim, Calif. – Recent home buyers are staying well within their means with notably higher incomes and modestly higher downpayments than buyers in the previous year due to the restrictive mortgage credit environment, despite historically favorable housing affordability conditions, according to a study released at the 2011 Realtors Conference & Expo.

The 2011 National Association of Realtors Profile of Home Buyers and Sellers is the latest in a long-running series of large national NAR surveys evaluating demographics, preferences, marketing and experiences of recent home buyers and sellers.

NAR 2011 President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., notes financing obstacles were more challenging for entry-level home buyers. “First-time home buyers fell to a 37 percent market share in the past year from a record high 50 percent in the 2010 study,” he said. “Although last year’s findings were boosted by the home buyer tax credit, long-term survey averages show that four out of 10 buyers are typically first-time buyers. This segment is critical to a housing recovery because they help existing home owners sell and make a trade.”

Seventy-eight percent of recent home buyers said their home is a good investment, and 45 percent believe it’s better than stocks. According to survey results, most buyers believe in the long-term value of home ownership.

The study shows the median age of first-time buyers was 31 and the median income was $62,400, up from $59,900 in the 2010 study. The typical first-time buyer purchased a 1,570 square foot home costing $155,000; the estimated median monthly mortgage principal and interest payment was $794. The typical repeat buyer was 53 years old and earned $96,600, notably higher than the $87,000 median reported in the 2010 profile. Repeat buyers purchased a median 2,100 square foot home costing $219,500, with an estimated median payment of $1,006.

Paul Bishop, NAR vice president of research, clarified the impact of unnecessarily restrictive mortgage credit.   “The bar has been raised to qualify for a loan. Buying your first home has never been particularly easy, but with record-high housing affordability conditions and a pent-up demand, we normally would expect a stronger performance,” he said. “This underscores how important it is to open the credit spigot for creditworthy buyers – banks simply need to get back into the business of lending. Higher home sales would help create jobs through related economic activity.”

The median downpayment for all home buyers was 11 percent, ranging from 5 percent for first-time buyers to 15 percent for repeat buyers. “The downpayment size for both repeat buyers and first-time buyers was a full percentage point higher than in the 2010 study, another indication of tighter lending requirements,” Bishop said.

“To illustrate, the median price paid by repeat buyers in the survey was 2.1 percent higher than in the 2010 study, but their income was 11.0 percent greater, despite lower interest rates. First-time buyers paid 1.9 percent more, but their income was 4.2 percent higher,” Bishop added.

Although overall home prices have trended lower, other NAR survey data show the median price paid by owner-occupants is notably higher than paid by investors, who are under-represented in this study and largely use cash to purchase heavily discounted distressed homes.*

First-time buyers who financed their purchase used a variety of resources for the downpayment: 79 percent tapped into savings, 26 percent received a gift from a friend or relative, typically from their parents, and 7 percent received a loan from a relative or friend. Nine percent sold stocks or bonds and 8 percent tapped into a 401(k) fund. Ninety-four percent of entry-level buyers chose a fixed-rate mortgage.

Fifty-four percent of first-time buyers financed with a low-downpayment FHA mortgage, and 6 percent used the VA loan program which requires no downpayment.