Will first-time buyers drag down home prices?

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In many of the hardest hit real estate markets across the country, home sales volume is starting to pick up, even as prices continue to plummet. But are they really plummeting? In many markets, home values are not falling nearly as much as the data would seem to suggest.

A National Association of Realtors March survey found that first-time home buyers accounted for 53% of all transactions. But NAR also reported that "the national median existing-home price for all housing types was $175,200, down 12.4 percent from March 2008."

Today, NAR reported that median home prices fell year over year in nearly nine out of every 10 metropolitan markets.


Here's the problem with this data: First-time home buyers are accounting for a record percentage of home sales right now, spurred on by falling prices and the first-time home buyer's tax credit.

Since first-time buyers generally buy smaller homes than people who are already midway up the property ladder, the result may well be that the median home sale price is falling considerably faster than the median home value. In other words, the high percentage of first-time buyers scooping up inexpensive distressed properties is making the housing market look a lot worse than it really is.

What can home buyers and sellers do with this information? Realize that just because the data says that home prices fell 15% or 20% in your area, that doesn't mean that the home you are looking at fell by that much.

Remember that median sales price and median home value are two very, very different metrics, and the first-time home buyer tax credit designed to stimulate housing sales may have the effect of artificially skewing the median sales price downward.
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