New home buyers hanging back

WASHINGTON – This should be a great time to buy a first home. Prices have sunk to 2002 levels. Sellers are waiting anxiously as homes languish on the market. Mortgage rates are their lowest ever.

Yet the most likely first-time homeowners, especially young professionals and couples starting families, won’t buy these days. Or they can’t. Or they already did, during the housing boom. And their absence helps explain why the housing industry is still depressed.

The obstacles range from higher down payments to heavy debt from credit cards and student loans. But even many of those who could afford to buy no longer see it as a wise investment. Prices have sunk 15 percent in three years.

Seth Herter, 23, a store manager in suburban St. Louis, said, “It also doesn’t seem smart anymore to buy with prices falling. Buying a home just doesn’t make sense to us.”

The proportion of U.S. households that own homes is at 65.1 percent, its lowest point since 1996, the Census Bureau says. That marks a shift after nearly two decades in which homeownership grew before peaking at 70 percent during the housing boom.

The biggest factors are the struggling economy, shaky job security, tougher credit rules and lack of cash to put down, said Dan McCue, research manager at Harvard University’s Joint Center for Housing Studies. The unemployment rate among typical first-timers, those ages 25 to 34, is 9.8 percent, compared with 9 percent for all adults.

“The obstacles facing first-time buyers are big, and it’s changing the way they look at homeownership,” McCue said. “It’s no longer the American Dream for the younger generation.”

A big reason is tougher lending standards.

Lenders are demanding more money up front. In 2002, the median down payment for a single-family home in nine major U.S. cities was 4 percent, according to real estate website Zillow.com. Today, it’s 22 percent. And one-third of households have credit scores too low to qualify for a mortgage.

When the economy eventually strengthens, the housing market will, too. The question is whether first-time buyers will then start flowing into the market. That will depend mainly on whether they think prices will rise, said Mark Vitner, senior U.S. economist at Wells Fargo.

“It’s a guessing game as to when things will turn around,” Vitner said. “But until they do, you won’t see young people buying homes.”