Lennox's Real Estate Blog

sharing my passion for real estate

First Time Buyers Are Key To Housing Market Recovery

with 2 comments

*This is a reposting to correct a graph within the blog.

The mid-term elections are finally over so it’s time to re-focus on the economy and housing market. In my travels around the country everyone wants to know what I think it will take to get the housing market moving again. The answer is simple: first time homebuyers.

Sales Activity Pyramid – Built On First Time Buyers
If you think of the housing market in terms of a pyramid, the base is made up of “more affordable” housing which is usually represented by first time buyers; in a healthy market, this accounts for about 40% of all home sales. The middle of the pyramid represents mid-priced homes and primarily repeat buyers. The top of the pyramid represents the smallest number of buyers and the most expensive part of the housing market. As first time home buyer activity increases at the base it sets off a chain reaction of sales up the price points. It is this process that drives and sustains a healthy housing market (see chart).

Federal Home Buyer Tax Credit – Why It Worked
The Federal Home Buyer Tax Credit was successful in part because it helped generate more first time buyers by providing them with a compelling call to action. Five months prior to the start of the housing tax credit, there were about 1.5 million first time homebuyers which represented about 32% of all home sales. After the tax credit’s February 2009 launch, the number of first time buyers went up to 2.4 million and continued to rise through October 2009 to 3.3 million. This represents 49% of all home purchases. Between November 2009 and April 2010 when the tax credit was extended, there were between 2.3 and 2.8 million first time buyers (44%). Following May of this year, we were back down to 1.5 million (32% of home buyers)*.

* Stats provided by National Association of REALTORS

The Solution – Continued Support From The Federal Government
So, how do we regenerate the first time buyer pool? As many of you know, I’ve been saying for years that I believe that the Federal Government should develop a down payment assistance program for first time buyers in urban markets similar to those of the USDA and VA. That’s because more than 30% of first time buyers have all of the qualifications to get into a home with the exception of a down payment (qualified means they have a stable job, a healthy credit score, and their debt-to-household income ratio is in alignment). That’s where down payment assistance comes in. By creating a fiscally responsible, self-funded down payment assistance program we could attract the number of qualified first time buyers that are needed to sustain a healthy housing market. Because as stated earlier, an increase in first time buyers leads to additional sales in the mid and upper price ranges. But in order to make this happen we need the continued support of the Federal Government.

To read more about my proposal for housing sustainability, entitled “The Great Foundation For American Housing”, click here: http://photos.realestateadmin.com/imageurl/CMS/106/HousingSustainabilityPlan_LennoxScott_June2010.pdf

As always, thanks for reading.


Written by Lennox

November 19, 2010 at 11:52 am

2 Responses

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  1. This would be a great call to action within our Realtor organization. Do we have a sponser for a bill like this? Great explanation showing cause and affect, thank you.

    Frank Wilson

    November 19, 2010 at 6:50 pm

    • Hi Frank – no sponsors right now, but we’re making progress. Thanks for reading. -Lennox


      November 29, 2010 at 1:50 pm

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