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First time buyers catching no breaks

By Justin Hunter

The housing market has been creating many obstacles for potential home buyers since around 2000. As home prices continued to escalate through the years, homes were financially out of reach for many throughout the country, hence the nationwide record-breaking sales declines.

But as interest rates and prices have started to decline over the past couple of months, a buyer’s market is emerging. However, not every potential buyer is able to join in this new favorable market.
Associated Press writer, Jeannine Aversa explains in her article, “Poll: Costs Still Stymie
First-Home Buyers,” which was posted on the October 12, 2006 edition of realestate.aol.com that first time home buyers are still having difficulties affording the highly inflated home prices.

“‘There are lots and lots of houses for sale that seem as though they are priced ridiculously and they aren't selling,’ said Mike Pietrafesa of Nassau County, N.Y. ‘I certainly think that the old standard of having 20 percent of your house value as a down payment is really out of the window these days. I

definitely think it is harder, in that respect, for first-time buyers.’”

According to an Associated Press AOL Real Estate poll, 80 percent of Americans feel it is difficult for first-time buyers to afford a home. And 59 percent believe that it is much more difficult than, say five years ago.

“Younger adults and minorities view affordability more of a problem now for first-time buyers compared with five years ago than do older people and whites, the poll found.”

The U.S. Census Bureau recently reported that 33 percent of homeowners with mortgages spent over 30 percent of their household income on housing costs.

The five-year housing boom inflated prices beyond expected rates to the point that household incomes could not compete with. This is a direct result for the current housing correction, to try and bring some normalcy back to the market.

“‘A lot of home prices are out of this world,’ says Patricia Cheatham, 59, who lives between Southern Pines and Lakeview in North Carolina. If something happened to her mobile home, she says she would not be able to afford to buy again. ‘I'd probably have to find a low-income rental place,’ she says.”

The poll revealed that 46 percent of those surveyed believe the housing market in their area is overpriced.

“Looking out over the next two years, 49 percent of people surveyed predicted that housing prices in their area will go up, while 18 percent thought they would go down.”

Mark Zandi, chief economist at Moody's Economy.com, said that the future home prices in a particular market will depend on where the market is located.

“A study by his company predicted that slumping prices will be concentrated in the states of California and Florida and the Northeast corridor from southern Maine to just south of Washington, D.C., as well as some parts of Nevada and Arizona. In some markets, prices may not bottom out until 2009, the report says.”

So, first time buyers basically have two options to purchase a home; borrow an interest-only or other exotic loan, or be patient and wait for prices to drop more.

The exotic loan sounds like a good idea, but many of its borrowers can not afford the monthly payments after the adjustments period (usually five years into the loan), which result in payment default. And there is nothing worse for a young adult than defaulting on a mortgage payment.

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