Rising mortgage rates discouraging first-time homebuyers, survey says

First-time homebuyers are thinking twice about getting into the spring market — and rising mortgage rates seem to be the reason.

That’s according to a national survey by realtor.com, showing that 44 percent of buyers planning to buy in spring 2017 are first-time homebuyers. That’s more than a 10 percent decline from October, when 55 percent of buyers planning to make a spring purchase said they would be looking for their first home.

“Last fall, we saw a large jump in the number of first-timers planning home purchases, which was very encouraging because their market share is still well below pre-recession levels,” said Jonathan Smoke, realtor.com’s chief economist. “But, as evidenced by their decline in share, first-time buyers are really dependent on financing and affordability is one of their largest barriers to home ownership.”

He then ominously predicted: “This number could continue to decline with anticipated increases in interest rates and home prices.”

The rise in rates — up, on average, about half a percentage point since 2016 — is associated with “an anticipation of stronger economic and wage growth, both of which favor buyers,” in a general sense, Smoke continued. Yet “higher rates make qualifying for a mortgage and finding affordable inventory more challenging. The decline in the share of first-time buyers since October suggests that the move up in rates is discouraging new home buyers already.”

As those rates climbed a few weeks ago, Jordan Levine, an economist with the California Association of Realtors, spoke on similar themes to the Mercury News.

“It’s a question of finding the funds you need for a down payment,” Levine said. “When prices get to the levels that we’re seeing, you’re still having to come up with a pretty decent down payment — even if you’re a first-time homebuyer getting an FHA loan for 3.5 percent down.”

Levine did some quick math: In Alameda County, where the median price of a single-family home was $780,000 at the time, that FHA loan would translate to “more than $27,000 cash you’ve got to put down, not counting other closing costs …” he said. “I just think that affordability is becoming an issue on the demand side. A lot of folks will be challenged to get into home ownership.”


Photo:  A “for sale” sign at a home in Georgia in 2015. (John Bazemore/AP)


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  • hoapres

    If you don’t have ALL CASH then you aren’t buying in Silicon Valley.

  • hoapres

    >> I just think that affordability is becoming an issue on the demand side. <<
    If no one can afford to buy the house then the house doesn't get bought.