Guidance for The Movement in the Real Estate Market

Housing Affordability Challenges.

For every market there are those that will be positively influenced and those that will be negatively influenced. With home prices rising, homeowners that were previously under water on their homes now have earned equity.

This market is squeezing first time home buyers out of the market. C.A.R.’s 2014 Annual Housing Market survey outlines several factors on why first time buyers are having their offers accepted.

The survey states that first time home buyers have lower median incomes, $80,000, when compared to repeat buyers of $120,000. The survey also found that on average a first time home buyer will have $32,500 available as a down payment while repeat buyers will have $100,000 available for their down payment. Younger households have not yet reached their maximum income potential since on average they have shorter tenures working in their field. This not only affects how much they are able to save but also the monthly financial burden of owning a property. All of these factors make a first time home buyer a much riskier borrower then a repeat borrower, but which in turns affects their interest rate. Economists state that “the low level of first time homes buyers is a concern because it signals a constraint flow of new households coming into the market.

Without a steady stream of new households achieving home ownership the trade up market cannot be replenished properly in the long run”. California had previously experienced this effect in the late 80s and in the early 90s when there was a decline in the trade up market. In 2014 the share of the market that included first time home buyers was 30.5 percent, an increase from 2013 when it accounted for 28.1 percent. This was, however, far below the 50.8 percent peak in 1995. If you are a first time home buyer, don’t let this information dissuade you from trying to purchase, instead use the information when constructing your offer. If you know you may look riskier on paper, with your agents help, you can find ways to make your offer more competitive on other elements.

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