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First-Time Homebuyers Could Improve Other Areas Of Housing Market
Homeownership became so commonplace between 2000 and 2006 that the American dream was a reality. Subprime lending, though, helped spark a nightmare economy. Today, mortgage lenders have stringent requirements. WOSU takes a look at the current housing market and talks with a first-time home-buyer about the process.
33-year-old Jamie Edgerton began dreaming of buying a home about five years ago, around the same time the housing bubble burst.
â€œI just started putting all my goals in place and started thinking about what was the first step.â€
Edgerton, who lived in an apartment at times while growing up, says she desired a different lifestyle for her family. A southeast side property manager, Edgerton is a single mother of three; her oldest child is in high school.
â€œAt some point I wanted him to have his own room; I wanted things to be bigger and feel like I was in a better place. Like I said, heâ€™s 17 now, so my two youngest will be able to enjoy the new home more than my oldest would.â€
Edgerton could have joined the masses of people in the early 2000s who were given loans for homes they couldnâ€™t necessarily afford. Instead, she started saving for one, a concept thatâ€™s making a comeback. And Edgerton also sought help from Homeport, a non-profit group in Columbus which offers classes on how to buy a house.
â€œThere was budgeting, there was credit, there was banking. It was an overload of information in financial fitness,” Edgerton said. “From grocery shopping to how to save and how to cut and where to cut at. And what would be good ideas on saving money and the expenses of everything.â€
Edgerton and other first-time home-buyers like her are experiencing a process much like the 1970s or 1980s, at least thatâ€™s how Ohio State University economics professor emeritus Don Haurin described it.
â€œIf you go into the private mortgage market youâ€™re going to be coming up with at least a 10 percent, maybe a 20 percent down payment,” Haurin said.
Edgerton said she didnâ€™t have to put that much down, though her FHA-backed loan required a down payment, a significant change from recent years.
Private banks have tightened their lending requirements, and the FHA made its own modifications after substantial losses due to foreclosures and delinquencies as a result of sub-prime lending.
Most recently, the FHA announced a one-tenth of a percent increase to yearly mortgage premiums. That equates to $100 for each $100,000.
Some industry experts say the premium hike will discourage first-time home-buyers, like Edgerton, and hurt the overall housing market. But professor Haurin doesnâ€™t buy that.
â€œThings happen at the margin, so there will be somebody out there that at the margin decides not to become a homeowner or apply for an FHA loan because of the incrementally higher premium theyâ€™re charging. But I donâ€™t expect that to be a major number of people.â€
Haurin said first-time home-buyers all but disappeared during the recession, choosing to live with relatives or friends.
â€œSo thereâ€™s a really large number of potential homeowner that are out there, and so once the housing market gets going I would expect there may be a significant boom because all of these potential households will actually start leaving their parents, leaving their friends and getting out into the housing market.â€
As first-time homebuyer demand increases, so will housing prices. And this could be good news for the move up market which Haurin said has tempered compared to the past.
â€œItâ€™s also one of the drags on the housing market as a whole. We also had such a big boom from 2000-2006 that a lot of people moved early into their ideal homes,” he said. “So those moves no longer need to happen. And weâ€™re just readjusting to a boom period by having a bust, but weâ€™re coming out of that now.â€
But Sue Lusk-Gleich, a realtor with Keller Williams Capital Partnerâ€™s Realty, said she doesnâ€™t entirely agree with Haurin.
â€œI think there was a pent up demand because people did withdraw and waited in that five-year period. So now I think weâ€™re seeing that pent up demand satisfied,” Lusk-Gleich said.
Nevertheless, the landscape of purchasing a home has changed. And for first-time home-buyers, Lusk-Gleich said, it has become more arduous.
â€œItâ€™s tougher in the respect that thereâ€™s more paperwork demanded of them. Thereâ€™s the dual underwriting process it seems like we are going through,” she said. “The IRS review. Thereâ€™s more restrictions. Thereâ€™s more restrictions. Is it harder? As long as they qualify they will get through the process.â€
For single mom Jamie Edgerton, the journey to owning her first home has been a long one. But after five years of saving money, improving her credit score and learning what it takes to be a homeowner, Edgerton and her children expect to move into their Pickerington-area home in March.
â€œRight now I have good credit which Iâ€™ve never had before in my life. That, along with buying the house, it was just all overwhelming,” Edgerton said. “And Iâ€™m still floating right now. Just the fact of it all, that I did it. Itâ€™s just so attainable. It really is.â€
Edgerton is entering the housing market at a time when interest rates remain at near record lows and prices have not bounced too far from the bottom of the market.