Housing Slowdown may be Good for First-Time Buyers

The growing signs of a slowdown in the housing market might be good news for home buyers. Slowing home prices—after the double-digit increases last year—mixed with still-low interest rates are making homes more affordable. Also, the supply of homes for sale today represents 5.8 months of demand, the most since October 2011, giving buyers more choices than they have had in the recent past, as inventory shortages have plagued many markets.

“From an individual perspective, the best investment you can make is to buy a primary residence,” John Paulson, who runs the hedge fund Paulson & Co., said in a statement recently. “Today, financing costs are extraordinarily low. You can get a 30-year mortgage somewhere around 4.5 percent.”

But despite low interest rates and slowing home prices, first-time home buyers have mostly been absent from the housing recovery so far. They made up 28 percent of existing-home sales in June, but typically take up 40 percent of the market, according to the National Association of REALTORS®.

“The first-time home buyer is just not the factor that it once was,” says Peter Boockvar, chief market analyst at the Lindsey Group, a D.C.-based economic advisory firm. “Without the first-time home buyer, and now with the reduction in the pace of investor purchases, the recovery will remain lumpy.”

Source: “Real Estate’s Epic Rebound Starts to Cool,” The Wall Street Journal (Aug. 2, 2014) [Log-in required.]