National Association of Realtors wants lenders to loosen up

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As the housing market continues to recover, tough mortgage requirements are preventing some buyers from entering the market, according to a new survey by the National Association of Realtors.

In its annual profile of homebuyers and sellers, the association found that tight credit is affecting homebuyers’ ability to obtain a loan.

“Single homebuyers have been suppressed for the past years by restrictive mortgage lending standards, which favor dual-income households who are more likely to have higher credit scores,” said Lawrence Yun, the NAR’s chief economist.

Eric Locher, president of the Charlotte Regional Realtor Association, said that tighter credit terms have many local homebuyers surprised when they’re looking to purchase a home. Some are finding they can’t afford as large a home and some can’t qualify to borrow at all.

“We encourage folks if they’re buying a house to come talk to us, let us give you an overview of the market, then go meet with a mortgage broker,” said Locher.  “Many wrong assumptions about affordability will be avoided this way, and if you have a problem with your credit, you’ll have an opportunity to fix it.”

The survey of nearly 9,000 recent homebuyers did not include investors. “The housing recovery would have been much weaker without investors, who often purchase with cash,” added Yun.

Looking at the demographics of the survey, the large majority, or 66 percent, of the buyers were married couples, 16 percent single women, 9 percent single men, and 7 percent unmarried couples.

The NAR has conducted the survey since 1981, and over the last few years has seen a decline in single buyers purchasing homes. In 2010, 32 percent of homebuyers were single but today that market accounts for 25 percent of all homebuyers.

Locher noted that the Charlotte market today is very family oriented. When the banks were actively hiring new graduates, many younger, single people were moving to the area.

Decline in first-time buyers

The NAR is calling for greater accessibility to credit, particularly given that interest rates are expected to continue rising, making home purchases even more costly for buyers.

“Affordability conditions remain favorable in much of the country, but consumers need access to safe and sound financing, particularly the 30-year fixed-rate mortgage, and with low down-payment options for first-time buyers,” Yun said.

The number of first-time homebuyers declined by 1 percent to 38 percent over the past year. This is significant because, as the NAR points out, the long-term average since the association started doing survey showed four of ten purchases were made by first-time buyers. “Historically, first-time buyers are instrumental in housing recoveries because they help existing homeowners sell and make a trade,” explained Yun.  He added, however, that investors may have made up the gap.

According to the survey results, the median age of a first-time homebuyer was 31, unchanged from last year, with a median income of $67,400. The typical first-time homebuyers spent $170,000 on a 1,670 square foot home. A repeat buyer typically was 52 years old and earned an average of $96,000. The median price paid by a repeat buyer was $240,000 for a 2,060 square foot home.

Locher said there’s been a decline in the Charlotte market of first-time buyers for a number of reasons. For many years, people would buy a house or a condo and ride the appreciation wave. Now, some first-time buyers are sitting on the sidelines, some because they enjoy the flexibility that comes with renting.

But he sees this as a cyclical event: “Americans enjoy homeownership and the benefits thereof.”

Nearly nine out of 10 buyers financed their home purchase, with first-time owners putting 5 percent down on average while repeat buyers put 14 percent down. Among first-time buyers, 78 percent said they used savings for a down payment, 27 percent used gifts from friends or relatives, and 7 percent received a loan from a friend or relative.  Fifty-four percent of first-time buyers said student loan debt made saving for a home loan difficult.

Fifty-seven percent of buyers used a conventional loan to obtain their home, while 26 percent of all buyers had a low down-payment FHA mortgage and 10 percent used a VA loan with no down-payment requirements.

The Charlotte area has seen more cash buyers recently, which Locher attributes to investors and owners moving down in the market, buying a smaller home.

Eighty-one percent of homebuyers still think their homes are a good investment, with 44 percent saying they believe homeownership is a better financial investment than owning stocks.

When looking for a home, 92 percent of buyers said they rely on the Internet and 89 percent said they used a real estate agent in their search.  Ninety percent of buyers who searched online purchased the home with the help of a real estate agent. On average, buyers searched for a home for 12 weeks and looked at 10 properties.

The survey showed sellers on average had been in their homes for nine years, but first-time home buyers said they planned on staying in their homes for 10 years and repeat buyers wanted to stay longer, at 15 years.

Reasons for buying and selling

The top factors influencing home choice were quality of the neighborhood, cited by 63 percent; convenience to work, at 48 percent; affordability of the home, at 40 percent; and quality of the school district, at 29 percent.

Charlotte buyers are attracted to good schools, looking at both today’s value and the future value of the school system, and a reasonable commute to work and to children’s schools, according to Locher.

The vast majority of owners – 80 percent – bought a detached single-family home, 7 percent bought a condo and 7 percent purchased a town home. Most buyers, at 53 percent moved into a suburb or subdivision, 18 percent bought in a small town and 16 percent in an urban area.

The 2013 survey’s average home seller was 53 years old with an income of $97,500. The average time on a market for a property was 5 weeks, down from 11 weeks in the 2012 survey. Reasons for selling varied, but 45 percent of sellers were looking for a larger house, 27 bought a home of similar size, and 29 were looking to downsize. Thirteen percent of sellers admitted they had put off selling their homes because their home value was less than the mortgage note.

The typical seller, who had purchased their home nine years prior, realized a median equity of $25,000, which reflected a 13 percent gain over the original purchase price. Sellers who had been in their homes longer, from 11 to 15 years, saw a greater median gain of $52,000, or 28 percent.

Most turn to agents

Both buyers and sellers chose a real estate agent based a referral from a trusted person. Sixty-three percent of sellers relied on referrals or had used the agent in a previous deal, as had 53 percent of buyers responding to the survey.  Trustworthiness and reputation were the most important factors in choosing an agent, and 66 percent said they interviewed only one agent before selecting the agent they would work with.

As in the nationwide survey, both Charlotte buyers and sellers relied on real estate agents for their transactions. Locher said prospective buyers and sellers begin their work online looking at sites like Zillow and Trulia, but when it comes to deeper research on a home or neighborhood, they ask professional realtors for help.

Most local buyers and sellers find their agents through repeat use or referrals from friends and neighbors.

A full 91 percent of homebuyers listed the property on the Multiple Listing Service and 81 percent used a full-service brokerage, in which agents provided a broad range of services and managed most aspects of selling a home.

The top services sellers working with agents were looking for were marketing to potential buyers, at 25 percent; helping selling a home within a specific timeframe, at 20 percent; pricing home competitively, at 19 percent; and finding a buyer for the home, at 15 percent.

Agents used a variety of methods to market a home. Eighty-five percent utilized the MLS, 66 percent used yard signs, 51 percent held an open house and 50 percent posted a property on their website. For their work, 79 percent of agents were compensated by the seller and 8 percent by both the buyer and seller.

Forty-three percent of real estate agents initiated the discussion about negotiating the commission or fee while 25 percent of clients asked their agent if they were able to negotiate their fee.

For-sale-by-owner transactions accounted for only 9 percent of sales, matching the record lows set in 2010 and 2012, while the record high was set in 1987 at 20 percent. Among those who went the FSBO route, 40 percent knew the person who bought their home. For those who did not know the buyer, 18 percent of the sellers were contacted directly by the buyer.

The median sales price for owners who used an agent was $230,000, well above the $184,000 median for a home sold directly by an owner. Also, the median income for FSBO sellers was

$86,200 while the median income for sellers using an agent was considerably higher at $99,000.

“Realtors always sell the price”, said Locher. “In every transaction, there is a buyer and a seller. The most important thing to remember is that realtors and the MLS create a marketplace where buyers and sellers can determine a value for themselves and come up with a reasonable price they can agree upon.”