Lending standards, rising rents box in single buyers

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In 2001, 27 percent of all homes were purchased by single homebuyers the real estate industry, from builders to brokers, catered to the new market with security features, gourmet kitchens and yards with little or no maintenance required, and sales promotions targeted at single buyers.

However, the salad days of single buyers apparently are over. For 2012, the National Association of Realtors reported the highest share of married couples and the lowest share of single buyers since 2001. Sixty-five percent of recent home buyers were married couples-the highest share since 2001. Sixteen percent of recent home buyers were single females-the lowest share since 2001.

Women always have dominated the single buyers’ market and they may be suffering most from a combinations and economic and political forces that have trapped singles into rental units at a time when rents are rising rapidly as vacancy rates reach history lows or 4.5 percent or lower. Today’s potential single buyer faces serious hurdles.

1. A sputtering economic recovery has made it difficult for first-time buyers to afford homeownership. The 2011 American median household income was 1.13 percent lower than what it was 12 years ago. Single buyers are actually slightly older than married buyers (46 for men, 48 for women compared to 42 for married couples) but have only a single income to pay the costs of homeownership. Some 47.5 percent of couples have dual incomes.

2. Tougher mortgage underwriting standards result in only about 60 percent of all purchase applications being approved. FICO scores, income to debt ratios and documentation requirements are tougher than six years ago. Single buyers, generally have greater difficulties meeting these requirements without the help of a co-signer.

3. Down payment requirements average 9 percent, which works out to $16,695 at today’s median house price.

4. The FHA recently announced it will raise annual insurance premiums for most new mortgages by one-tenth of a percentage point and most borrowers will be required to pay mortgage-insurance premiums throughout the life of a loan, rather than stopping payments when the outstanding principal balance reaches 78 percent of the original principal balance. Also FHA said it will propose raising required down payments to 5 percent from 3.5 percent for mortgages with original principal balances above $625,500.

Every day that passes homes cost more in most markets. Prices rose 4 to 7.5 percent last year and they rose more in the entry-level price tier that is most popular with single buyers. This year most experts predict prices will continue to rise, especially among entry-level homes, but not as much, perhaps 2 to 4 percent.

Singles are caught between a rock and a hard place. Facing barriers to homeownership that are getting higher, rents are rising if they do nothing. Rents rose 2.5 to 4 percent last year and may rise as much as 5.5 percent in 2013, according to some projections.

The QM and QRM rules being implemented this year by the Treasury Department will make it even more difficult for singles b codifying many of the changes to underwriting standards, such as debt-to-income ratio and, in the case of the QRM rule, possibly raising down payments to 10 percent.

Paul Bishop, NAR vice president of research, said, “We’ve known for some time that stringent mortgage credit standards have been holding back home sales, but these findings show single buyers have been hurt the most over the past two years. Total home sales would be 10 to 15 percent higher without these unnecessary headwinds,” he said.

Yet, despite the hurdles facing single buyers, once they become owners singles are proving to be more resilient than two-earner families. Since the peak, homeownership rates for married couples with children plunged 5.1 percentage points while those for single-parent and other families with children were down 4.6 percentage points. By comparison, the declines for married couples without children (1.3 percentage points) and other childless families (2.0 percentage points) are more modest. Homeownership rates for non-family households, which include a substantial share of singles, have also changed relatively little, according to the Harvard Joint Center for Housing Studies.