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Is Something Holding Back the Housing Recovery?

Here in Las Vegas, the median price of a single family home has been at $200,000 for two months (July and August).  The September 9, 2014 issue of the Review-Journal reported that this is the first time since July 2012 (that’s 2 years!) that year to year gains were below double digit percentages.  These figures support the position that the market has stabilized and buyers should feel comfortable becoming homeowners.  However, the R-J also reported that sales of existing homes fell 2.8 percent from July to August.  At the same time, on line data collection indicates that July saw a spike in people looking at houses on line.  So, there’s demand, there’s inventory, but sales are going down?

I previously wrote about changes in the waiting period for people who short sold houses to obtain a new conventional loan which increased the period from two years to four years.  This will keep some former home owners to remain renters for longer than they may have intended.  Another group not participating in the housing recovery are first time homeowners.  An article in the Las Vegas Sun on September 14, 2014, found multiple reasons for the lack of first time home buyers.  Those tight underwriting criteria are keeping many people, not just first timers, out of the real estate market.  First time home buyers are usually 25 to 35 years old, the hardest hit by the recession.  They also have the highest unemployment rate of all age groups.  Lower wage rates also affect them.  But those tighter underwriting criteria really are the biggest culprit.  FHA, often the favored loan vehicle for first time home buyers, has raised mortgage insurance premiums on those loans, so they are less affordable.  In some areas, high rents prevent potential buyers from saving for a down payment, although this is not the case in Las Vegas, where rents remain very affordable.  Debt to income ratios have also been raised to 43 percent.  First time home buyers may have student debt they are servicing which both makes it harder to save a down payment and also raises the debt to income ratio.  The combination of lower wage jobs and higher debt can prevent a first timer from qualifying for a loan.  First time home buyers also tend to be looking at entry level (lower priced) houses, which as we here in the Las Vegas Valley well know, also attracts investors, often with cash, who are able to win the multiple offer battle for affordable priced housing.

See our blog post on alternatives to buying a home  if you don’t qualify for a loan with a bank.

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