First-time Buyers: Home builder confidence took a slight dip last month. The Wells Fargo/NAHB Sentiment Index posted at 61 for December. That’s still not bad; anything over 50 means the outlook is positive but what about the first-time buyers.

First-time buyers

First Time Buyer

Market Timing

First-time buyers appear to be holding spirits in check. This is especially concerning because the Fed’s recent rate hike will impact the down payments first-time buyers will be able to put down.

The traffic component of the home builder index continues to drop, posting at a sub-50 reading of 46 for December. This component reflects the lack of first-time buyers in the new-home market.

The good news is that overall new-home activity remains strong. Housing starts were up 10.5% to 1.173 million units on an annualized basis in November. Multi-family starts lead the charge with a 16.4% monthly increase. The single-family component was up 7.6%. Some of these homes are priced in a way that will benefit the First-time buyers, because their mortgage would be less than their rent.

So far, so good. We think mortgage rates will remain steady for the near future. The long-term imperative, though, is for rates to rise. Look for that to happen as the Fed raises interest rates and that is not good for First-time buyers or anyone else when you are thinking – mortgage.

French political economist Frederic Bastiat was keen to point out the consequences – intended and otherwise – people tend to ignore because they’re focused on the present.

It used to be that once someone became a homeowner he/she would own a large asset that always appreciated. Home equity, and therefore net worth, would also always grow. If the income failed to support the lifestyle, the home could always be sold for a profit – no harm, no foul.

After the housing bubble burst, it hit home that all asset prices – even housing prices – are subject to price depreciation. In the aftermath, everyone adjusted his or her perspective accordingly.

Over the past five years, the cost of purchasing a home has been rising 6% to 10% on average. Unfortunately, the greatest appreciation has occurred in the starter-home market. This means fewer renters are able to join the ranks of homeowners, however, for the moment, the First-time buyers have a window of opportunity.

In the past, we may have thought that continually rising home prices are overwhelmingly positive. Today, we’re more inclined to look for the unseen attached to this good thing.

Article: First-time buyers

This article is presented for educational information by the Winfield Real Estate team.

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