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Stewart: First-time home buyers disappearing

Many indicators suggest the national economy has risen out of the several year downturn that arose largely out of the 2007-2009 mortgage crisis.

Unemployment rates are at a decade low, house prices are at higher levels than before the mortgage crisis, and the June mortgage foreclosure rate was at the 2006 level of 1.7 percent (down from 2.5 percent a year ago). Yet an interesting development in the apparent recovery of the housing market is there is a perceptible shift away from younger people buying homes and choosing instead to rent.

Over the past 40 years, first-time home buyers have accounted for about 40 percent of all home purchases. The past two years have seen this number drop from 38 percent in 2013 to 33 percent year in 2014.

The primary driver of the increase in housing prices has been an older demographic of cash-heavy buyers who are less dependent on mortgages to buy houses, in many cases purchasing the houses outright as rental investment property.

An obvious correlation exists between an increase in house values, which is outpacing income growth, to fewer first-time home buyers.

Home buyers now require more income and savings to afford a mortgage and down payment. Also, the need to pay higher rent on property that is now worth more is a natural deterrent from being able to amass a large enough down payment to make a home purchase.

Another consideration is the shift in societal perception about owning versus renting. Whereas being a homeowner was traditionally viewed as a positive status, the large-scale devastation that displaced many homeowners and caused them to become insolvent is viewed by the younger generation as a caution against rushing to take on a six-digit and decades-long mortgage obligation. The mortgage crisis has somewhat destigmatized being a renter.

The reticence of first-time home buyers is perhaps justified in light of the fact some experts predict a second wave of the mortgage crisis will hit next year when many modification program loans and home equity lines of credit, which allowed borrowers a temporary hiatus to pay interest-only on their home loans, will revert back to requiring principal reduction payments.

There are over 319,000 mortgages the Troubled Asset Relief Program (TARP) special inspector general reported are set to revert back to principal reduction payments in 2015.

Another report from Trans-Union indicates $50 billion-$79 billion of home equity loans are potentially subject to increased payments to include principal reduction.

Whether most borrowers who obtained temporary relief are better positioned to either make higher payments or sell their houses, which may have increased in value from being upside down, will be a variable in the housing market in the near future.

Regardless of the future prospects of the housing market, the reality is first-time home buying is on the decline despite overall home purchasing having stabilized.

The longer-term impact of having a younger populous become increasingly month-to-month or year-to-year residents of a community instead of intending to stay in the same house for the long term, when young adults also are the most likely to have school-age children, remains unknown.

• Brad Stewart is an attorney with Zukowski, Rogers, Flood & McArdle in Crystal Lake. Stewart devotes most of his practice to corporate and local government law. He can be reached at bstewart@zrfmlaw.com.

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