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Rising interest rates, increasing home prices, a weak jobs market and stricter lending standards continue to push many first-time home buyers out of the market. This drop, although modest, is alarming to many in the mortgage business because first-time buyers are an indicator of the future growth and vitality of the industry.

Not only do first time buyers fill the gap that existing homeowners create when they "trade up" to larger, more expensive homes, they also represent the "pipeline" of future business that both lenders and investors can hedge on.

According to the National Association of Realtors' (NAR) annual Profile of Home Buyers and Sellers report, first-time home buyers represented 38% of all home sales in the past year, down from 39% in 2012.

The report is based on a July survey of 8,767 adults nationwide combined with real estate data from June 2012 to June 2013. The survey was limited to owner-occupants and does not include investors or vacation homes.

What's notable is the dip in first-time buyers comes as the industry shifts back to a purchase market and as origination of new purchase loans is increasing. NAR's report indicates that investor activity has, to a degree, been offsetting the dip in first-time homebuyer purchases, although investor data is not included.

NAR's survey, however, shows only a slight decline in first time buyers. On average, four out of 10 home purchases have been by first-time buyers since 1981, and the recent dip doesn't really change that ratio by much, NAR reports.

"The share of first-time buyers appears to be only modestly below normal, but we have to keep in mind that investors have been more active in recent years, and they’re not included in these results," says Lawrence Yun, chief economist for NAR, in a statement. "Historically, first-time buyers are instrumental in housing recoveries because they help existing homeowners sell and make a trade."

Single buyers have similarly been impacted by tighter credit, the report shows. That's partly because many lenders now "favor dual income households that are more likely to have higher credit scores" when underwriting loans, Yun says.

The overall market share of single buyers declined from 32% in 2010 to 25% in both 2012 and 2013, according to the report. However, in the years preceding 2010, the market share of single buyers was stable, usually moving only one or two percentage points.

"Given that mortgage interest rates are expected to gradually rise, we need greater access to credit for a sounder housing recovery," Yun says. "Affordability conditions remain favorable in much of the country, but consumers need access to safe and sound financing, particularly the 30-year fixed-rate mortgage, and with low down payment options for first-time buyers."

About 66% of buyers responding to NAR's survey were married couples, 16% were single women, 9% were single men, 7% were unmarried couples and 2% were "other."

For comparison purposes, in 2010, 58% of those surveyed were married, 20% were single women, 12% were single men and 7% were unmarried couples.

About 14% of respondents were multi-generational households, including adult children, parents and/or grandparents.

"We don’t have historic comparisons for this finding, but added the question to this year's study because we’ve been hearing more about this trend from our Realtor members," Yun explains. "It’s another manifestation of the difficulty in obtaining a mortgage, in addition to slow growth in good paying jobs."

To view the full report, click here.


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