First-Time Home Buyers Remain Quiet in San Jose Housing Market

Perhaps the recent good news we posted for potential California mortgage holders will change the following in the coming year; but for now:

First-time home buyers in California fell to the second lowest rate on record last year, as overall sales dropped 23 percent, according to the annual report from the state’s Realtors.

The share of first-time buyers has fallen to 27.1 percent last year from 30.5 percent in 2005, according to the California Association of Realtors.

CAR said the proportion of first-time buyers who purchased a single-family home increased slightly from 61 percent in 2005 to 65 percent in 2006, but still remained significantly below the 72 percent recorded in 2004. Other facts included:

- Twenty-nine percent of first-time buyers purchased a condo or a town home in 2006 compared with 33 percent in 2005.

- The typical first-time buyer had a median age of 35, earned an annual household income of $80,000, and purchased a home with a historically high median price of $450,000.

- CAR also cited a sharp increase in the use of alternative home loan products last year.

“Home buyers with zero-down payments increased significantly from 4.5 percent in 2000 to 21.1 percent in 2006,” said CAR Vice President and Chief Economist Leslie Appleton-Young. “Two out of five first-time buyers [used a no down payment mortgage] on their home purchase, while just one in 10 repeat buyers purchased their home with no down payment.

Overall, the group said home sales in California fell in 2006 after four years of expansion.

Sales in the Bay Area fell at a slightly lower rate than for the state as a whole. After peaking in 2004, Bay Area sales declined 10 percent in 2005 and then 19 percent in 2006.

The median price in the Bay Area - the highest of any region in the state - continued to increase by small single-digit increments throughout 2006, in part CAR said because of inventories that were well below the statewide levels.

“The statewide median price saw shrinking gains throughout the year, slowing from a 14 percent year-to-year increase in January 2006 to just under 2 percent as the year drew to a close,” said San Jose Realtor and CAR President Colleen Badagliacco. “That’s a far cry from the string of double-digit annual percentage gains that prevailed during the first half of this decade.

“Over the period 2003 through 2005, inventories were lean, multiple offers were common, and buyers and sellers alike knew they needed to move quickly to consummate a transaction,” she said.

“But as the market began to slow in late 2005, [mortgage loan applicants] sensed that they would get a better deal if they waited, while sellers still hoped to sell their home at a premium. This drove a wedge between buyer psychology and seller psychology, creating more market friction and leading to a slowdown in activity.”