For years, even as her friends bought huge houses in the expensive
But in January, the airline customer-service agent and her boyfriend closed on their first home. The three-bedroom, two-bath house, complete with granite countertops and a pool, had been listed for $340,000 in late 2007, but the couple bought it for $220,500. "Six months ago I didn't think I would own a home," says Ms. Child, 27 years old. "And now I do. It's so perfect." Elizabeth Child and William McGeary were able to buy their first home after prices in
The housing bust is creating a new group of winners: first-time home buyers. People who sat on the sidelines -- often watching wistfully as their friends became homeowners -- are suddenly in a position to grab some great deals. Indeed, first-time home buyers made up 41% of all buyers at the end of 2008, up from 36% in 2006, according to a recent survey from the National Association of Realtors. The new buyers are being lured in by home prices that are down about 25% from their peak levels in mid-2006, according to the S&P/Case-Schiller Index.
In some markets, prices have dropped even further -- slumping around 40% in
Ululani and Scott Larson looked for a house in the
Of course, would-be buyers need decent credit scores and the money for a decent down payment. Also, finding the right property can be a challenge for first-time buyers, who tend to be seeking less-expensive homes. The typical first-time buyer purchased a home costing $165,000 last year, according to the National Association of Realtors. Yet some of the best bargains right now are in luxury condos and sprawling single-family houses. "The disproportionate McMansion inventory doesn't work," says Shari Olefson, a real-estate lawyer who works in southern
Still, real-estate agents and mortgage lenders are banking on first-time buyers to help stimulate the otherwise dreary housing market. Many are holding workshops and information sessions designed specifically for first-time buyers, addressing federal and state tax incentives for homeowners, local prices and ways to take advantage of low mortgage interest rates. Tim Epps, a mortgage adviser in
Mr. Epps and many mortgage lenders recommend that buyers come up with as big a down payment as possible, even though Federal Housing Administration loans will allow some first-time buyers to enter the market with as little as 3% down. (Hud.gov has more information about FHA loan programs designed for first-time buyers.)
"Even if [a home owner] loses some paper equity, in the long run, there are some tax benefits," says Mr. Epps, referring to the deduction for interest paid on mortgages and the credit for first-time home buyers. The $7,500 tax credit for first-time buyers, which Congress passed last year, has had little effect on the market so far. Because the credit has to be repaid, buyers are viewing it as another loan, industry experts say. But the stimulus package that Congress is working on is likely to repeal the provision that requires buyers to pay the credit back and possibly enlarge the tax credit as well.
For many buyers, the biggest question is whether to hold out for even better conditions. Historically, recoveries in the housing market are slow, and most experts expect the prices to stay low for some time. That means people can take their time shopping for the right property, real-estate experts say. John Stratton, an agricultural engineer in Lisle,
Patience can pay off. Jen and Drew Rocky spent over a year tracking their prey before the price was right. In the summer of 2006, they saw the four-bedroom, 2½-bathroom home of their dreams in
From: The Wall Street Journal; Feb. 11, 2009