The Plight of First-time Homebuyers

Bloomberg Magazine covers the plight of first-time home buyers in its August 12th article, “First-Time Buyers Shut Out of Expanding U.S. Home Supply”.

“I definitely sacrificed in terms of location,” said Nielsen-Dembe, a 33 year old mother of two who lives with her husband and bought a house in west Denver last April for $184,500. “I had to cross streets that were not ideal in order to get a house.”

With the abundance of all-cash buyers (42% nationwide in November 2013), strong investor appetite for affordable buy-to-rent properties, and the reluctance of underwater homeowners to sell (19% of all homeowners are in negative equity, with those of inexpensive homes three times more likely), the inventory for first-time homebuyers is crunched.

The inventory of U.S. homes for sale in the bottom third of the market (those below $198,000 and most sought after by first-time homeowners) fell 17 percent in June compared with a year earlier, according to a Redfin analysis of 31 large U.S. metropolitan areas. In Denver, this number was closer to 51% and in Austin, 34%.

Depressed inventory means that first-time homebuyers, already faced with tighter lending conditions, slow wage growth and lower credit scores, are increasingly shifting their home search to less attractive but more affordable neighborhoods often with higher crime rates, more incidents of violence, less desirable school districts, higher rates of foreclosure and fewer available jobs.

Since a neighborhood’s quality directly affects a home’s value, by sacrificing neighborhood for affordability, these first-time homeowners are also at a higher risk of losing value from the purchase of their home.

At PartnerOwn, we believe that homeowners should not be punished for where or when they decide to buy a home due to macroeconomic circumstances beyond their control. That’s why the Shared Responsibility Mortgage (SRM) automatically decreases homeowners’ monthly payments when their local home values drop. This price relief is built-in to the mortgage and does not require additional paperwork, phone calls or visits to the lender. In return for this benefit, the homeowner will share a small portion of the home’s appreciation (10%) upon sale with her lender. If the home does not appreciate in value, the lender receives no compensation.

By removing the uncertainty of paying more when local home prices decrease, PartnerOwn gives homeowners the freedom and peace of mind to purchase a home in a location and at a time that works best with their personal situation. Finding the right home is stressful, but we want to make sure that paying for it isn’t.

Need to Bridge Between Owning and Renting

By Dylan Hall, PartnerOwn Team Member

The Housing Partnership Network released a white paper in March about opportunities for reform in the housing market.  In the report, they cite the need for new models for “Homebuyer Readiness and Sustainable Ownership.”  They cite the damage to credit scores and the tightening of lending standards in response to the most recent economic downturn as reasons why.

One need they address are “Hybrid Tenure Products to Bridge Between Owning and Renting.”

“Policy efforts should focus on the challenge of creating new pathways to homeownership for young families and low-income households in this new market environment.  One particularly important consideration is the embrace of hybrid housing tenure models that help families move between renting and owning their homes.  Hybrid tenure products include lease purchase, shared equity, shared appreciation, community land trusts and earned homeownership approaches.  Many communities and providers around the country have experimented successfully with these models but we have so far failed to make these interventions widely available.”