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What's Handicapping First-Time Homebuyers?

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What's Handicapping First-Time Homebuyers?

For months and months now we’ve been pointing to seemingly obvious economic data to prove that the U.S. housing market is in trouble because of the weak U.S. economy. Those in the “know”—economists and the real estate board—have been waxing eloquence on how the weather is the main culprit behind the disappointing U.S. housing market numbers.

The National Association of Realtors (NAR) said existing-home sales in December were adversely affected by bad weather in many areas. Sales of existing homes in January were down 5.1%, reaching their lowest levels in 18 months. At the time, the NAR echoed it’s sentiment from the previous month and said the prolonged winter weather was playing a role and positive housing market activity would be delayed until spring.

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Well, spring has sprung, and it looks like blaming the weather is getting a little old. Existing-home sales in February fell 0.4% month-over-month and 7.1% year-over-year to their lowest level since July 2012. (Source: “February Existing-Home Sales Remain Subdued,” National Association of Realtors web site, March 20, 2014.)

First-time homebuyers, the litmus test for how well the economy is doing, accounted for 28% of purchases in February—that’s up from 26% in January (which was the lowest market share since the NAR first started compiling monthly data). In February 2013, first-time homebuyers accounted for 30% of sales. The 30-year average for first-time homebuyers is 40%—a number both real estate professionals and economists consider ideal.

As per usual, the U.S. housing market is being propped up by those with lots of money. All-cash sales made up 35% of sales in January—up from 33% in January and 32% in February 2013. Individual investors accounted for 21% of housing market sales in February, versus 20% in January and 22% in the same prior-year period.

Not surprisingly, the disappointing U.S. housing market data was blamed, in part, on the weather. Although interestingly, this time around, there are signs that the NAR thinks weak economic indicators might just have something to do with the disappointing existing housing market data.

The president of the NAR said student debt is a factor hindering first-time homebuyers from getting into the housing market. The banks’ tight lending rules is another hurdle many first-time homebuyers are having difficulty clearing, which is funny when you consider the Federal Reserve lowered interest rates to encourage lending. Anyway, 20% of buyers under the age of 33, the main group of first-time homebuyers, delayed their purchases not because of the cold weather, but because of outstanding debt.

The U.S. housing market relies on first-time homebuyers (not renters) to help propel the U.S. economy. After purchasing their home, first-time buyers spend money on improving their homes with new appliances, furniture, yard equipment, and remodeling.

Going forward, it seems quite clear that the U.S. housing market will need jobs growth and wage growth to improve, or at least, more so than sunny skies, daisies, and optimism. Sadly, it doesn’t look as though the U.S. economy has the metrics in place for sustained economic growth just yet.

If you’re a bull, you can’t help but think real estate stalwarts like The Home Depot, Inc. (NYSE/HD) or Lowes Companies, Inc. (NYSE/LOW) will rebound. Bears, on the other hand, might want to consider financial services companies, like Wells Fargo & Company (NYSE/WFC) and Bank of America Corporation (NYSE/BAC)—because even the well-heeled like today’s interest rates.

This article What’s Handicapping First-Time Homebuyers? was originally published at Daily gains Letter

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

 

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