Housing Isn't a Buyer's Market for Many First-Timers

 

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In May, Phoenix had 66% fewer lower-price homes listed for sale than it did a year ago, says an analysis by real estate website Zillow. It counted listings in the bottom, middle and top price ranges in 100 leading markets.

While the bottom tier nationwide experienced an average 12% decline overall, Las Vegas, Colorado Springs and San Francisco saw more than a 50% drop, Zillow's data show.

Inventories also shrank faster than the national average in Minneapolis; Charleston, S.C.; Seattle; Washington, D.C.; Miami; and parts of Southern California, Zillow says.

Since February, Lucy Redonda, 25, has lost 10 bids she made on townhomes in Miami. Cash buyers have been her nemesis, she says. To counter, she got more aggressive, moving from bids just under the asking price, to asking, to $5,000 above, then to $15,000 more.

"I still didn't get the home," says the registered nurse.

Finally, she raised her down payment, from 10% to 25%, and scored a winning bid for a $120,000 condominium.

In Dorado's part of Citrus Heights, home listings have shrunk rapidly. As of mid-May, the area had less than a month's supply of homes for sale, based on the current pace of sales, says Joanie Cubias, of Lyon Real Estate, which tracks such data. That's down from a 3-month supply a year ago. Realtors consider a 6-month supply a balanced market.

As with Redonda in Miami, Dorado also had to raise his Citrus Heights home-shopping tactics.

He looked at dozens of houses. He scoured real estate listings constantly. He discovered that new ones hit the Redfin real estate site at midnight. If he liked one, he'd tour it the next morning.

Before, he'd visit homes with his Realtor on weekends. They'd arrive, and "people would be waiting in cars" to get their turn to tour the house, he says.

The power of cash

First-time buyers are running into tough opponents in cash buyers. They accounted for almost a third of existing home sales in March and April, the National Association of Realtors says. Before the housing crash, cash buyers accounted for less than 10% of sales, NAR says.

More than 53% of first-time home buyers use FHA loans, the April Campbell/Inside Mortgage Finance HousingPulse Tracking Survey indicates.

FHA loans have a minimum down payment of 3.5% and take weeks to close. Conventional loans have bigger down payments and can close faster, Realtors say.

Cash deals close fastest, and they don't involve an appraisal, which lenders require before they make loans. Sellers like cash offers because there's less risk that they'll fall through, so they most often win, says Phoenix-area Realtor Keith Krone.

Krone recently listed a $125,000 bank-owned home and got 11 offers in two days. The winning bid? An investment company paying $130,000 in cash. Some bidders offered more but required financing, Krone says.

Through the years, FHA appraisals have become more aligned with those for conventional loans, FHA lenders say. But there are still differences, mostly on health and safety issues.

An FHA appraisal, for instance, will look for chipping, peeling or cracked paint on older homes. If found, FHA says "it's got to be fixed," says appraiser Fred Ebert of La Verne, Calif., who does both types of appraisals. The concern is that the paint may contain lead, a health hazard. A conventional appraisal would likely leave that decision to the buyer, Ebert says.