More housing starts don't mean more first-time buyers
A home for sale in San Francisco.
Home builders are having a party, thanks to a host of new numbers suggesting the backhoes and construction workers are busy. Home construction rose 22 percent over last year. Building permits are up 7.7 percent. And a measure of builders’ confidence has exceeded expectations.
But first-time buyers are largely absent. According to the National Association of Homebuilders, new buyers historically purchased around 30 percent of newly built homes. Now it’s around 16 percent.
“Underwriting criteria are tighter now,” says David Crowe of the association. “And that’s the age group that usually falls out if you are restrictive in terms of credit scores.”
Young buyers also face job instability, lower incomes, and increased down payments. One brokerage found the median down payment for starter homes rose from around $6,000 in 2007 to more than $9,000 last year.
But first-timers are a key to unlocking the whole housing market. Susan Wachter, a professor of real estate at the Wharton School, says at some point, lots of first-timers will buy existing starter houses.
“When they come in the market, that’s going to give a boost to existing home sales,” Wachter says, “which will allow those who are in their homes, still not getting the price they want, still underwater, they’ll be able to sell. Then they’ll be able to buy the new homes, which tend to be trade-up homes. New homes are trade-up homes generally.”
It’s a cascade effect. And right now, new demand has to flow in.