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Young homebuyers still few and far between

Date posted:  2/4/14 09:15:00 AM Many young Americans are still steering clear of making a home purchase.

Many young adults across the nation are choosing to rent rather than go through the process of purchasing a home. Some are doing so because they don't want the responsibility of owning, while others are choosing the renter's path because they simply can't afford a down payment or don't have the credit history to be approved for a loan.

Jade Rubino, a clinical psychologist living in Northern Virginia, told CNBC that she's still paying a high premium to rent despite her solid job. Rubino also recently had a baby, which CNBC said is the top reason for renters to start looking into buying a home.

"I think it's just financial mostly, that's what I feel like," Rubino said. "Around here the square footage that you get for the amount of money that you put down is not great."

She's not alone in that thinking. Many millennials are choosing to rent instead of buy, which has spurred the first-time buyer share to drop to its lowest level in nearly three decades. First-time homebuyers purchased just 33 percent of all homes so far in 2014, which is down from 38 percent the previous year. Traditionally, first-time buyers purchase around 40 percent of all homes.

The housing market seems to be at a crossroads. While the nation's economy has a lot of bright spots moving forward - employment levels are up and home prices are regaining value lost during the recession - first-time homebuyers still aren't making much of an impact.

What needs to change for young buyers to come back to the housing market?
Richard Smith, CEO of Realogogy, a franchiser of real estate brokerages, believes two things need to happen if the housing industry wants to continue its ascent.

Smith told CNBC the underwriting methodology must be revised in order to give more people a chance to obtain mortgage loans and fees on loans offered by the Federal Housing Administration must drop.

"Banks have a very difficult time adjusting to the new environment, which holds them accountable even for technical defaults, so the putback risk is very high," Smith said. "Lenders know it and they've been reluctant to lend to first-time buyers for that reason."

He also believes fees on loans provided by the FHA are "extraordinarily high." Some changes or modifications to the underwriting methodology could go a long way in helping prospective buyers get their foot in the door when it comes to acquiring a loan.

"The first-time buyer, traditionally, is a higher-risk buyer," Smith said. "But with some, I think, basic considerate underwriting we can get the first-time homebuyer back."

Lawrence Yun, chief economist of the National Association of Realtors, said student loan debt and slow wage growth has made the housing market a difficult realm to enter. Yun also claimed competition from investors, low inventory levels and tight credit conditions continue to hinder the chances of prospective buyers gearing for a purchase.

"Adding more bumps in the road is that those finally in a position to buy have had to overcome low inventory levels in their price range," Yun said in a statement.

First-time buyers by the numbers
Not much has changed when it comes to the median age of first-time homebuyers, according to NAR. The median age in 2014 is 31, which is the same since 2012.

Additionally, the median income has risen slightly for first-time buyers - from $67,400 in 2013 to $68,300 in 2014 - but not enough to adjust for the rising home values and fierce competition from investors.

The average first-time buyer purchased a home with 1,570 square feet costing $169,000. On the other hand, the average repeat buyer was 53 and made $95,000 per year.