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First-Time Homebuyers Fighting for a Spot in an All-Cash World
By Sam Lane
Just because existing-home sales are up, doesn't mean first-time buyers are having an easy time. Photo courtesy of Justin Sullivan/Getty Images.
Existing-home sales spiked in August and actually reached the highest level in six-and-a-half years, according to the National Association of Realtors' monthly report released Thursday.
That may be a good sign overall, but the housing struggle continues for two key -- and often overlapping -- groups nationwide: first-time homebuyers and those purchasing homes with a mortgage or some form of financing.
NewsHour's Sam Lane looked at the connection between those groups and tried to get a sense of the challenge.
Scott Trudeau's New York City apartment is simply too small to accommodate visitors.
When his parents want to use some of their vacation days to see their granddaughter, Trudeau's first child, they have to find a hotel.
"It's expensive for them to visit. If we had a larger home -- just an extra bedroom would make it much easier for us to have visitors," said Trudeau, the chief technology officer at a home-improvement site called Apartment Therapy.
Trudeau and his wife recently finished paying off their student loans and, earlier this year, decided they wanted a place that could comfortably fit a family without nagging concerns about rent hikes prompting a move. The couple began to explore the possibility of purchasing a home in Brooklyn or Queens.
But unfortunately for the Trudeaus, the housing market has not been kind to first-time buyers. In the aftermath of the housing bubble and financial collapse, banks tightened their lending standards and granted fewer loans. As a result, first-time buyers, who usually require at least some financing, are increasingly losing out to all-cash buyers.
According to Thursday's National Association of Realtors' existing-home sales report, first-time homebuyers accounted for only 28 percent of purchases in August, compared with 31 percent in August 2012.
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"First-time buyers should be closer to 40 percent of the market, but they're held back by the frictions of tight credit and very limited inventory in the lower price ranges in most of the U.S.," said Lawrence Yun, the Association's chief economist, in a July release.
Despite the market showing some signs of progress (a record-high 291 of 361 U.S. metropolitan areas now qualify as "improving housing markets," according to the National Association of Home Builders), banks are still hesitant to lend, and all-cash buyers are, perhaps, in a better position than ever.
RealtyTrac, a real estate data company, reported at the end of August that all-cash purchases accounted for 40 percent of residential property sales in July, its highest point in 2013. That number sat at just 31 percent a year ago. And the Wall Street Journal cited a report from Goldman Sachs analysts, which said actually more than 50 percent of home purchases in 2012-13 were financed with cash, compared with just 10 percent in 2005.
Mike Myers, a Century 21 real estate agent in Norwalk, Ohio, said sellers will now often consider a lower all-cash offer on their homes before a higher offer that involves financing. They like the security of an "it's a go" deal, he said.
"Banks are lending, but restrictions are tough to meet," Myers noted. "Several years ago, [banks] were pushing money at you. Now you go in and they're being selective."
So Myers realizes the frustration for people like Trudeau, who lost to all-cash buyers multiple times in his recent search.
"I'm realistic," Trudeau said. "I try not to get overly emotional."
In late February, a two-family renovated house in Prospect Lefferts Gardens, Brooklyn, received an all-cash offer the day Trudeau and his wife planned a follow-up visit. Coincidentally, it was the same day he was set to make an offer. Then, a deed restriction disqualified the Trudeaus from purchasing a condo in Ridgewood, Queens. Later, Trudeau had to cancel an inspection at a house in Sunnyside, Queens, after the sellers attracted an all-cash offer the day before inspectors were scheduled to arrive.
Several listing agents have told Trudeau they were only showing homes to all-cash or heavy-cash buyers. In one case, after Trudeau viewed a property, the agent told him his offer wouldn't even be competitive.
"Once we got into it, we realized, 'Wow, this wasn't what we were expecting when we started looking.' That's for sure," he said.
And though the couple has strong credit and a household income around $200,000, they don't have a lot of cash and their families can't provide assistance.
All of the Trudeaus' struggles have kept them among the more than 30 percent of Americans renting their homes, according to the National Multi Housing Council.
"I have no idea [when we'll be able to buy]," said Trudeau, who still browses the housing market occasionally. "We're still waiting for things to change. Or we need to end up with a big pile of money from somewhere that we're not expecting to have anytime soon."
So though the outlook for first-time homebuyers may seem grim at the moment, Myers, Trudeau and others gave some suggestions for those considering purchasing a home with financing.
"The first thing is -- get prequalified on a loan," real estate agent Myers said. "Most lenders will do that now. It's not 100 percent, but they'll say, 'If we follow up and [your information] is correct, you will get [the loan].' "
Walter Molony, a spokesman at the National Association of Realtors, emphasized something else: the importance of credit score awareness.
"If buyers are not aware of their credit scores, it may take several months to improve their scores," he said. "They need to know what the rules of the game are and what they should and shouldn't do to improve their scores."
Molony added that he's heard of some situations in which buyers' parents pay cash to buy a house for a child. Then, the children pay their parents in a loan-type format.
"It's a win-win because the kids are getting a mortgage that they couldn't get from a bank and the parents are getting a better return than anything they could get from a bank," he said.
But what about folks like Trudeau who don't have that luxury? Trudeau advises potential first-time homebuyers to "cast an extremely wide net and expect it to take an extremely long time."
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