Tuesday, December 22, 2009

Why First-Time Homebuyers Are Important

The United States faces the largest excess of housing stock of any country ever. That doesn’t mean there are more houses and apartments than people, though that is true in a few isolated places. It does mean there are too many houses compared to the people who might occupy them. This is why first-time homebuyers are so important, and why the federal homebuyer tax credit specifically focuses on them.

When people who already own a home buy a new home, ordinarily they move out of the old one, leaving it vacant and available for sale. The transaction, then, typically doesn’t change the number of houses on the market. It is a different story when people buy a home for the first time. They leave, at most, a vacant apartment behind. The number of vacant houses declines when they buy a house.

Vacant houses are significant for a number of reasons, among them: they may serve as staging areas for criminals targeting the neighborhoods they are in; market values for all houses in the area go down; builders cannot rationally build new houses in the area (though so far, that hasn’t particularly stopped them).

Many of the vacant houses were previously owned by people who fundamentally couldn’t afford them. The banks they were borrowing from ended up owning the houses and offering them for sale. If there is a way to get people who can afford the houses to purchase them, it reduces the number of vacant houses.

In the end, this is fighting a losing battle. Other factors tend to increase the number of vacant houses on the market, and at this point, they have the upper hand. Homebuilders keep building enormous numbers of new houses, at a rate that is more than half of their pace at the peak of the bubble; millions of foreign workers, unable to find jobs, have left the country; there is a mass movement of households from houses to apartments. Over the next five years, the number of vacant houses will probably go up, no matter what government policy is. But there are benefits to be found in postponing that increase.