First-time homebuyers’ cautious approach to dream
The mortgage meltdown has left impression on local young adults
Sunday, November 20, 2011
When Tara and Ian Thackeray started looking for a house, they had one priority: keep the monthly payments the same as the rent they were already paying.
So, the Thackerays, both 24, purchased their $172,000 Clark County starter home with a mortgage they pre-qualified for based on Ian’s income as a commercial cement polishing technician. The couple might have qualified for a larger loan if they had added in Tara’s more sporadic income as a self-employed photographer. They didn’t want to risk getting in over their heads, Tara said. The Thackerays moved into their ranch house in October, giving their two-year-old son, Zephyr, a backyard with a climbing tree.
“We knew we could afford this house. We’ve seen so many people get into houses they couldn’t afford,” she said.
The Thackerays’ cautious attitude is shared by
many Clark County first-home buyers on the heels of the worst housing downturn in history, according to local real estate experts.
“It’s a change of values for the younger generation,” said Gene Thompson, a broker with Vancouver-based Equity Northwest Properties. “All of them know people that have lost homes.”
People in their twenties and thirties are both victims and witnesses of the national housing crisis that started in 2007 and continues to affect Clark County’s economy nearly five years later. Those who purchased a house mid-decade likely owe more money on their mortgage than the home’s market value, while those who are getting ready to buy are mindful of their predecessors’ mistakes. Others are uncertain about their job security and too strapped with debt to qualify for a home loan, thereby fueling a thriving rental market.
For many young adults, buying a first home is part of the American dream. But dropping values, stagnant sales and a high foreclosure rate have spurred questions about whether that dream makes financial sense. This generation’s attitudes and experiences could shape Clark County’s housing market for a generation to come.
Out of reach
Young buyers were harder hit by Clark County’s high unemployment rate than the population at large, said Scott Bailey, a regional economist with Washington’s Employment Security Department. The county has lost about 15,500 jobs since 2007, according to state figures. “Young people were the ones who got hit the hardest, in terms of job losses,” Bailey said.
Those who do have jobs face stagnant wages and climbing student-loan debt.
That’s put home ownership out of reach for many.
More than half of 18-to-24-year olds now live with their parents, as do growing numbers of 25-to-34-year-olds, according to U.S. Census Bureau data. Those who choose to leave the nest are renting in higher percentages.
“Everybody wants to own their own home, don’t get me wrong,” said Dana Carter, 25, who works as a medical billing associate and rents the Vancouver home she shares with boyfriend Ryan Fritz, 30, and Ryan’s son Stephan.
Like many of her peers, Carter suffered through a year-long period of unemployment starting in July 2009. Discouraged by her fruitless job search, Carter took out a $20,000 loan for tuition to attend a one-year program in the medical billing trade. She has graduated this year and landed a good-paying job. But Carter doubts she would qualify for a home mortgage loan.
“It would be ridiculous for me to think about going out and buying a house right now, because of all of the debt I’m in,” Carter said.
Hurdles to buying
Young would-be buyers who do want to purchase a home, meanwhile, face a changed lending climate that puts much more emphasis on verifying that a qualified buyer has stable income, said Keith Wall, a sales manager with Wells Fargo Bank’s Columbia Tech Center branch in Vancouver.
The subprime loans that fueled buying before the bubble burst have evaporated and been replaced by mortgages with stricter requirements.
Gone are the days of zero-dollar down payments. Conventional loans now require a 20 percent down payment and come with rigid income and credit score requirements, putting them out of reach for many buyers, especially those with short credit histories and lower incomes.
That has spurred a boom in Federal Housing Administration-based loans, which made up 22.8 percent of Clark County mortgages issued in 2010, up from just 3.1 percent in 2007, according to data obtained through the Home Mortgage Disclosure Act.
Even FHA loans, which are easier to obtain and require down payments as small as 3.5 percent, cost more than the easy-to-get, 100-percent-financing mortgages of the mid-decade housing boom.
Caution may also prevent many young adults from entering the housing market. One out of every 586 houses was in some stage of foreclosure in Clark County in October, nearly double the statewide rate of one in every 1,049 homes, according to California-based RealtyTrac Inc. September’s median home price — half sold for more, half for less — was $185,000 for all new and existing homes, a 29.7 percent decline since September 2007 at the height of the housing boom, according to Vancouver-based Riley & Marks appraisal firm.
With many current homeowners unable to sell or even afford their houses, entering the housing market could look more like a gamble than an investment.
The Thackerays looked at around 150 homes, said Tara Thackeray.
“We looked at whether we would be able to sell it as our family grows. Would we have equity in it?” she said. “We didn’t want to be stuck or upside down in a house that we could no longer afford.”
Investors move in
In the short term, young adults’ choices are compounding current trends in Clark County’s housing market.
The would-be buyers join a growing number of people from all generations who now pay rent instead of a monthly mortgage bill — often not by choice.
For example, people going from foreclosures to apartments make up a good fraction of new residents at the 378-unit Sterling Heights Apartments development in east Vancouver, said Jasmine Petty who oversees leasing at the complex. She said the influx started in 2010 and has leveled off a bit in more recent months.
“We still get people who are losing their homes to foreclosure and short sales, just not as many as last year,” Petty said.
Tighter bank-lending standards and Clark County’s high foreclosure rates are not only increasing demand for rentals, but pushing rents higher and pitting rental market investors against starter-home buyers.
That’s because investors, many with cash to spare, are buying up apartment complexes and houses that they plan to either fix up and sell or rent out as a source of income. Long-term investors — those who buy rentals — are finally making a return on investment from the rents they charge, due to lower purchase prices for houses.
In the meantime, those who buy fixer-upper houses for turn-around sales are helping to feed the starter-home market, said Kale Dunning, a broker with Dunning and Associates at the Salmon Creek office of Coldwell Banker Seal. Starter-home buyers, who are usually dependant on government-backed loans, must purchase houses that meet strict home inspection and appraisal guidelines.
“These investors are helping increase the inventory of nice homes,” Dunning said. “It keeps it fluid and keeps the market going.”
That may be a factor in the recent uptick in the number of houses sold in Clark County, which has experienced year-over-year increases for three consecutive months. In September, 504 sold, up 21.7 percent from September 2010, according to Vancouver-based Riley & Marks.
“We’re approaching a point where the level of activity is steady,” said Glenn Crellin, director of the Washington Center for Real Estate Research in Pullman.
Not everyone is convinced that young adults will remain cautious as the real estate market stabilizes.
Mike Lamb, a broker with the Vancouver office of Windermere Real Estate Stellar Group, said data can be interpreted in a number of ways. He senses that more first-time homebuyers will begin moving into the market, enticed by lower prices and mortgage interest rates, expected to remain low through the middle of 2013, according to the Federal Reserve.
“The fact is, buyers today can buy much more house than they used to and the interest rates are better,” Lamb said.
Crellin expects buyers to wait a little bit longer for signs of economic improvement, but also believes that young buyers will eventually follow in the footsteps of their parents’ generation. His prediction is based on student surveys conducted at Washington State University.
“They indicate this is not a permanent change in attitude, but much more an attitude of modest delay,” Crellin said.
Others believe that Clark County’s real estate troubles could continue for years, which could reinforce shifts in how today’s 20- and 30-somethings view home ownership.
Kevin Gillette, executive director of the Community Housing Resource Center, which provides mortgage counseling to troubled home owners, said he sees no end in sight to Clark County’s high foreclosure rates, which could worsen if home values continue to decline and the job market doesn’t recover.
The center has helped approximately 660 households with foreclosure counseling in the past 12 months, Gillette said.
“They ask, ‘How long is that going to take (for home values) to go back up?’” Gillette said. “Maybe the answer is never.”
That’s a view of homeownership quite different from the “house as investment vehicle” that dominated for much of the past two decades.
Just as children and young adults of the Great Depression often continued to pinch pennies and seek efficiency as they aged, those whose early encounters with independence came during the great housing bust of recent years could reject the view of a home as an investment.
The difference between today’s would-be homebuyers and those who purchased houses from about 2004 through 2007 is that earlier group saw the transaction as a way to better oneself financially, said Tim Duy, an economics professor at the University of Oregon.
“It really dominated people’s decision-making process and led them to buy bigger houses than they could afford,” Duy said.
Today, homebuying is no longer seen as a sure bet to financial security, which could impose lasting effect on the local and national economy, according to Duy. He expects consumer spending to remain flat as homeowners no longer borrow against their mortgage loans and other buyers opt to buy homes as cash investments.
“The implications for the broader economy are not good,” Duy said. “Only when people start purchasing houses can businesses hire more people and begin to expand.”