The marginalization of first-time middle-class homebuyers

Roy Oppenheim, Esq.

COMMENTARY | Once the foundation of the real estate market, first-time middle-class homebuyers are finding themselves pushed out of the housing market.

Not only are those of the middle class unable to obtain financing from banks, but they also must compete for their dream home with all-cash buyers, foreign investors, and hedge funds that have been gobbling up the limited supply of homes making their way onto the market -- all thanks to the banks.

Without equity from the sale of an existing home, first-time homebuyers must dip into their savings for a down payment and with the economy in a free fall for the last few years that savings has dwindled.

According to the National Association of Realtors Chief Economist Lawrence Yun, first-time buyers represented around 32 percent of purchases in June 2012, but that fell to 29 percent this June. "First-time buyers should be closer to 40 percent of the market," he said," but they're held back by the frictions of tight credit and very limited inventory in the lower price ranges in most of the U.S."

American dream dashed

Even after years of declining home prices and record-low mortgage rates, middle-class households are finding it increasingly difficult to live the American dream.

Where once the middle class helped to drive the economy and lead the country out of difficult financial times, the decline in home values and subsequent crash of the real estate market has made it virtually impossible for the middle class to take the lead this time around, even as the economy starts to improve.

Oh yeah, and let's not forget the fact that many people lost their jobs and with it the income to be able to afford a home.

Home equity lost

The Federal Reserve estimates that $7 trillion in home equity was lost from American households between 2006 and 2011 due to the housing crisis, and in 2012, a total of $192.6 billion in wealth was lost because of foreclosures across the United States.

Many have already forgotten that it was the banks that got us into this predicament. They are the ones that saddled borrowers with deceptive mortgages they couldn't afford. And when these homeowners no longer could pay, it was the banks that engaged in fraudulent activities (robo-signing) to take back the homes that they never should have financed in the first place.

A recent article in the Wall Street Journal notes that many of the products like no-money-down mortgages that led to the housing bubble and subsequent burst are no longer available, making it difficult for first-time homebuyers to obtain financing.

Lending tightens

The same lenders who once lured first-time homebuyers with their too-good-to-pass-up financing have become significantly more circumspect about who qualifies for lending. Let's face it, without financing, most first-time buyers aren't going to be able to enter the market.

The first-time homebuyer has historically been one of the most important buyers in the market, because they are the ones that start the dominoes falling for larger purchases. Without them, exiting homeowners can't sell and move into more expensive homes and pump more money into the housing recovery.

What's the takeaway? We are experiencing the marginalization of the middle class. Without first-time homebuyers, not only will the housing market recovery remain sluggish but the entire economy will be unable to fully recover and make it to the next level.

Real estate attorney Roy Oppenheim is the co-founder of Oppenheim Law in Fort Lauderdale, Fla., and Weston Title. He is also creator of the South Florida Law Blog, where he frequently provides "In the Trenches" commentaries.