Pool of first-time home buyers shrinks in California

The share of first-time home buyers dropped from 30.5 percent in 2005 to 27.1 percent in 2006 in California, according to a real estate market report released today by the California Association of Realtors trade group.

“The State of the California Housing Market” found that the share of buyers who used a second mortgage rose from 38 percent in 2005 to 43 percent in 2006, which is the highest percentage since 1982. And the share of home buyers with zero down payments increased from 4.5 percent in 2000 to 21.1 percent in 2006, the Realtor group reported.

Leslie Appleton-Young, vice president and chief economist for the Realtor group, said in a statement that two out of five first-time buyers made a zero down payment on their home purchase, while one in 10 repeat buyers purchased their home with no down payment.

The C.A.R. survey also found that the share of buyers who used a second mortgage climbed from 38 percent in 2005 to 43 percent in 2006 — more than triple the percentage since 2001, and the highest percentage since 1982.

Statewide sales of existing single-family homes decreased 23 percent in 2006 compared to 2005, while statewide median-price growth slowed from a 14 percent year-to-year increase in January to about 2 percent by the end of the year.

“The interest rate environment … played a significant role in the housing market of the past few years,” stated Appleton-Young. “From 2002 through the first half of 2005, interest rates were either expected to fall or remain at attractive levels. When the fixed-rate temporarily exceeded 6 percent in 2003 and 2004, sales slowed. But in each case, market activity accelerated when the rate fell below that threshold. By contrast, when the fixed-rate moved past 6 percent in late 2005, it remained there. Expectations adjusted and anticipated further rate increases, contributing to the slowdown in sales in late 2005 and into 2006.”

Home sales in the San Francisco Bay Area fell at a slightly lower rate than for the state as a whole, the association reported. After peaking in 2004, Bay Area sales declined 10 percent in 2005 and declined another 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 because of inventories that were well below the statewide levels,” according to the report.

Inventory levels in the Southern California region nearly tripled from a year ago to reach levels that were in the range of the long-term average, according to the report, and the Central Valley had the largest decline in sales activity among the three regions in California.

Other findings in the report include:

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

• The share of first-time buyers who purchased a single-family home increased from 61 percent in 2005 to 65 percent in 2006 but was below the 72 percent recorded in 2004.

• The share of adjustable-rate and hybrid loans among all loans decreased from 43 percent in 2005 to 35 percent in 2006, while the share of fixed-rate loans rose from 57 percent in 2005 to 65 percent in 2006.

• About 34.7 percent of repeat buyers considered home-sale proceeds as their primary source of down payment on their next home, compared with 41.4 percent in 2005 and 45.1 percent in 2004.

• The use of savings as the primary source of down payment increased from 31.9 percent in 2005 to 34.7 percent in 2006, and that share has increased from 29.2 percent in 2002.

• The median down payment declined 8.8 percent from $80,000 in 2005 to $73,000 in 2006, despite an increase in the median home price — the first time since 1995 that the median down payment dropped.

• The median down payment for first-time buyers decreased from $25,000 in 2005 to $10,000 in 2006, while the median down payment for repeat buyers decreased from $119,000 to $100,000.

• The median loan amount for first mortgages continued to increase in 2006 along with rising home prices, climbing 8.2 percent from $384,000 to $415,500 among all buyers.

• The median first mortgage amount for first-time buyers increased 6.8 percent from $347,800 to $371,600, while the median first mortgage amount for repeat buyers increased 8.1 percent from $400,000 to $432,500.

• More home buyers used 100 percent financing to purchase their home. About 21.1 percent were financed with a zero-down-payment mortgage compared with 19.7 percent last year. Recent use of zero-down mortgages has increased significantly since 2000, when they were used by about 4.5 percent of buyers. About 40.9 percent of first-time buyers made a zero down payment on their home purchase, while 11.3 percent of repeat buyers purchased their home with no down payment.

• 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.

• Fifty percent of all first-time buyers were married and 35 percent of them were singles. The share of married first-time buyers has been declining slowly since 2000. First-time-buyer households with two or more individuals declined from 16.2 percent in 2005 to 13.5 percent in 2006.

• The typical repeat buyer had a median age of 45, earned an annual household income of $120,000 and purchased a home with a historically high median price of $618,000.

• Six of 10 repeat buyers were married, a quarter of them were singles, and one of eight were buyer households with two or more individuals. Repeat buyer households with two or more individuals have increased from 6.6 percent in 2002 to 12.7 percent in 2006.

• About 47 percent of these home buyers were married, 37.6 percent were singles and 13.4 percent were households with “two or more individuals.”

• The typical home seller was 50, had a two-member household, earned an annual household income of $100,000 and lived in the home for five years before selling it.

• Fifty-five percent of all sellers were married and 27 percent were singles. Households with two or more individuals accounted for 12 percent of all sellers in 2006, which is roughly flat compared to 2005.

• After peaking in 2005 at $220,643, the median net cash gain by sellers from all home sales declined 8.4 percent to $202,000. It was the first time since 1997 that the median net cash gain fell. The median net cash gain for single-family detached homes increased 1.6 percent to $250,000, while the median net cash gain for condos and townhomes declined 2.7 percent to $180,000, the association also reported.