Housing Recovery Increasingly Prices Out First-Time Buyers

“First-time buyers are important to get the housing market to move to a new plateau,” said Steven Ricchiuto, chief economist with Mizuho Securities USA Inc. “Without them, you just get stuck at a marginal recovery environment.”

Malik Benyebka is among those having a hard time getting in. Mr. Benyebka, a 40-year-old tennis coach, now rents a three-bedroom home in San Marcos, Calif., which he shares with his wife and two daughters. They are looking to purchase a similar home in the same area, for around $450,000, but have thus far lost out on all their bids—in one case to a buyer who offered all cash.

In the meantime, Mr. Benyebka and his family are sending letters to owners in hopes of tugging at their heart strings. “It’s pretty much, ‘We have two daughters. We are a family, we work hard, we’re first-time home buyers trying to get a house in this neighborhood,’ ” Mr. Benyebka said of his letter.

In June, first-time buyers accounted for 29% of purchases of existing homes, compared with 32% in June a year ago, according to the NAR’s June existing home-sales report released Monday.

The report found that overall, sales of existing homes fell 1.2% in June to a seasonally adjusted annual rate of 5.08 million. While that was down from a revised 5.14 million in May, it was up 15.2% from June 2012 and was the second-highest level of sales since November 2009.

The national median existing-home price was $214,200 in June, up 13.5% from a year ago.

To be sure, the sharp price gains that have been a hallmark of the housing recovery in many markets could moderate as mortgage rates rise, a point that would likely reduce competition among buyers. But for now, the housing market’s brisk rebound over the past few years has exacerbated a familiar problem for many first-time buyers: financing.

People in the first-time home-buyer demographic are more likely to be unemployed, underemployed or have a spouse unemployed, to have lingering student debt, a less-established credit record and weaker credit scores.

Between January and June, the median credit score for first-time buyers was 720, below the 750 for repeat buyers, according to information collected for the National Association of Realtors’ Confidence Index.

At the same time, no-money-down mortgages and other products that were popular before the mortgage crisis have largely disappeared.

Meanwhile, lenders have become much more cautious, scrutinizing appraisals, incomes and the sources of borrowers’ down payment funds to guard against potential legal liability should mortgages default.

First-time buyers are also competing for lower-priced properties with investors who can often pay cash.

A recent jump in mortgage rates is another hurdle, raising monthly payments that could squeeze first-time buyers’ budgets.