U.S. home prices have risen for 14 straight months, but first-time buyers have been increasingly on the sidelines.
In May, first-time buyers accounted for 28 percent of existing-home purchases, down from 34 percent a year before and 36 percent two years ago, according to the National Association of Realtors.
The declining share of first timers means that many have missed out on low interest rates, which recently moved up from near-record lows, and home prices that have risen sharply from their bottom.
“The people buying homes today … are participating in home price growth. Younger people, they are being left out,” says Lawrence Yun, chief economist of the NAR. “It remains to be seen when the first-time buyer can return.”
First-tme buyers are critical to a housing recovery because they help existing-home owners sell and move up to larger or more expensive homes. But their presence is being reduced by:
• Competition. Cash buyers accounted for 33 percent of existing home sales in May. Investors, who are often all-cash buyers, accounted for 18 percent of purchases, the NAR says.
Cash buyers are tough competitors, especially in markets with limited inventory and for first-time buyers who often use low down-payment loans to finance purchases.
The first-time buyer “is being squeezed out of the market a lot,” says Zillow economist Svenja Gudell.
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