First-time buyers find deals, help perk up house sales

— -- Kelly Butler just got a bargain.

Sure, her new three-bedroom home came with fake barn wood nailed to the bathroom walls, carpet that had to be ripped up, broken closet doors and a need for plumbing and tile work.

No matter. Butler, 27, and her husband, Jim, 28, represent the new face of today's home buyers: first-timers who are snapping up distressed homes and fixer-uppers that are being sold at bargain prices.

Up to 45% of homes being purchased today are in that category, according to an April report by the National Association of Realtors (NAR) — and that's a major force driving existing home sales. First-time buyers accounted for more than half of all home sales in March, with activity concentrated in lower price ranges. But there is a troublesome side, because sales of foreclosed and other distressed homes tend to drag down overall home prices across the USA. These properties typically sell for 20% less than traditional homes.

Economists tracking the beleaguered housing market say these first-time home buyers represent a critical demographic that could help lead the industry out of its doldrums by buying up much of the excess inventory of homes that is drawing down home values nationwide. And in one promising sign, the inventory of unsold homes is starting to shrink. Total housing inventory at the end of March fell 1.6% to 3.74 million existing homes for sale, which represents a 9.8-month supply at the current sales pace, compared with a 9.7-month supply in February.

The Butlers have been fixing up their home since they moved in on Jan. 31. They plan to paint the brown exterior a cheerier white, with blue shutters. For 3% down, they got the foreclosed home in Stratford, Conn., with three bedrooms and two baths for $213,000 and a fixed loan at a 5.5% interest rate. The price was about 35% less than the previous owners paid a few years ago.

"Yeah, it's a little scary from the outside," says Kelly, an operations manager at The Regus Group, which rents office space. "But these fixer-uppers are really selling. There were even bidding wars. All these people were fighting for these houses."