Share Of First-Time Buyers Second Lowest On Record In 2006

February 20, 2007

Affordability concerns continued to impact the residential real estate market in California, with the share of first-time buyers declining to their second lowest level from 30.5 percent in 2005 to 27.1 percent in 2006, according to C.A.R.’s "The State of the California Housing Market" report, released earlier this week. Based largely on C.A.R.’s 26th Annual Housing Market Survey, the report examined trends in buyer and seller behavior during 2006, a transition year in which statewide sales of existing single-family homes decreased 23 percent, while price appreciation slowed dramatically as the year progressed.

"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," said C.A.R. President Colleen Badagliacco. "But as the market began to slow in late 2005, buyers 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."

The 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. Additionally, more than one-fifth of all homes purchased were financed with a zero-down payment mortgages, up from 19.7 percent last year. Recent use of zero-down mortgages has increased significantly since 2000, when they were used by just 4.5 percent of buyers.

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