Less investor demand spells good news for first-time homebuyers

9/23/2013 11:54:32 AM

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Reduced housing demand from real estate investors is making it easier for first-time homebuyers to compete, according to a report from Reuters. The news source reported that due to rising home prices, some investors are beginning to slow their momentum.

"Investors helped stabilize a housing market that was in free-fall and they did so by taking advantage of fire-sale home prices," Michael Feroli, chief U.S. economist at JPMorgan Chase & Co, told Reuters. "Now you see few fewer bargain prices in the market and that's a reason investor demand is coming off its peak."

According to the Campbell/Inside Mortgage Finance survey, investors accounted for nearly 20 percent of homes purchased during June 2013, down 23 percent from February. This also marked the lowest level of investor activity since September 2012. Meanwhile, a separate survey from ORC International shows that 48 percent of investors plan to slow down on home purchases over the next year. This is an increase of 18 percent from 10 months prior.

While real estate investors helped stabilize the troubled housing market, the increase in demand has also made it more difficult for first-time homebuyers to get a foot in the door. High demand has led to increased home prices, and along with rises in mortgage rates, affordability has become an issue for first-time buyers.

However, with investor interest beginning to wane, reduced competition will likely make it much easier for first-time homebuyers to enter the market. Additionally, specialized loan programs are helping make the process more affordable.

For instance, FHA mortgages not only feature competitive interest rates, but they can have down payment requirements as low as 3.5 percent. Additionally, qualifying for these loans may be easier for buyers who have less than perfect credit, or less established credit histories, making them particularly popular with first-timers.

Regardless, the market for first-time homebuyers has remained strong despite competition from investors.

"We do not share the concern about weakness in housing demand going forward because we are not convinced that the data indicates a material decline in first-time buyer participation," said researchers Jessica Dill and Ellyn Terry, two economists from the Atlanta Federal Reserve.

However, less competition is still a boon for new buyers struggling to find and afford the home of their dreams.

Contact The Federal Savings Bank to find out more about FHA mortgages and other home financing options.