What’s Motivating First-Time Home Buyers?
By: Oscar Wei, Senior Research Analyst

With demand rising sharply as first-time buyers sought for entry-level homes, the share of first-time buyers surged from 36 percent in 2008 to 47 percent in 2009, and increased for the third consecutive year. The proportion of first-time buyers exceeded the long-run average of 39 percent, and the share was the highest since 1995 when more than half of all buyers were first-timers.

Improvements in housing affordability played a big role in the increase in the market share of first-time buyers. With lower prices and historically low mortgage rates, affordability improved dramatically in 2009, creating great opportunities for well-qualified buyers with a steady job and stable income situation. Lower prices across the state sent affordability to record high levels in 2009. C.A.R.’s First-time Buyer Housing Affordability Index (FTB-HAI) was at 64 percent in California, a noticeable improvement from just two years earlier when the Index hit a record low of 26 percent. With home prices expected to increase slightly in the upcoming year, the housing affordability index will remain around 60 percent throughout 2010, keeping those opportunities open to future home buyers .  

The federal tax credit was also a significant factor in many first-time buyers’ decision to purchase a home, as 69 percent of those surveyed said that the federal tax credit was either “very important” or “most important” in their home buying decision. According to the C.A.R. “2009 First-Time Home Buyers Tax Credit Survey”:

•   Over nine in ten first-time buyers (94 percent) were aware of the tax credit before they purchased
     their homes.
•    Four out of ten (39 percent) first-time home buyers in 2009 said they would not have purchased
     a home if the federal tax credit for first-time home buyers was not offered.

For questions about Real Estate 411, please contact the Research & Economics Department atresearch@car.org or (213) 739-8352