Moving Forward: First Time Buyers are Barometer

What will it take to revitalize America’s residential real estate market? Many industry observers are predicting a slow recovery beginning this year, with first-time home buyers leading the way. With low interest rates as well as the $8,000 tax credit in place, first-time homebuyers are faced with a huge advantage in today’s real estate market.

There is a variety of market factors that are enticing first-time buyers. Historically low interest rates are very appealing, as is the $8,000 tax credit in the stimulus bill for first-time buyers that earn less than $75,000 ($150,000 for couples). Home prices are also attractive. The average cost of an existing home in 2009 is about 10% less than a home listed during the same period in 2008. Couple all this with the fact that first timers are unencumbered with selling an existing home and you have an excellent climate for new buyers.

Of course, there are obstacles for first-time buyers as well. Credit remains tight, so mortgage applicants will need a good job history and solid FICO score to become qualified. It also may be difficult for high-earning first timers to obtain jumbo loans, defined in the Los Angeles area as loans of more than $729,500. These loans are viewed as high risk because of the amount.

But this first-time buyer market is driving all other markets on the Westside.  The saying might go as follows: “As the first time buyer goes, so goes the market.”  As more and more entry level homes and condominiums sell in all Westside neighborhoods, opportunities to buy open up for the sellers of those entry level homes.  They, in turn, buy up, and so the pyramid grows.

With continued assistance from government and lenders, consumer confidence grows and more and more buyers enter the marketplace.  First-time buyers may be the key to a successful turnaround, so watching and monitoring the entry level market may be the key to timing the bounce in your market.