Investors out muscle first time homebuyers

by 20 Jun 2012

(USA Today) -- CITRUS HEIGHTS, Calif. – Alex Dorado thought that buying his first home was going to be easy.

"I said, 'This is a recession. No one is looking at houses,' " the cellphone salesman says.

Dorado, 25, found his first love in February, a 1,200-square-footer in this Sacramento-area suburb. Before he put his offer in, he took his parents to see "where I was going to live," only to discover the house was already sold.

He lost more than a dozen other bids on homes, often to cash-packing investors, before he landed a $134,000 fixer-upper in May with a low-down-payment Federal Housing Administration (FHA) loan. Now, he's upgrading the home, which sits on a blue-collar street with dented cars parked in two nearby driveways.

As the nation's housing market shows signs of bottoming after years of declining prices, many first-time buyers such as Dorado are getting a rude awakening. Instead of having their pick of homes to buy in some markets, they're losing houses to cash buyers and bidders with bigger down payments, or they're facing bidding wars spurred by shrinking numbers of homes for sale.

The competition can be most evident for lower-price homes in markets hard-hit by foreclosure, such as Phoenix, Miami and parts of Southern California, or those with relatively strong economies, such as Washington, D.C., and San Francisco, Realtors say.

First-time buyers who use FHA loans might be in for the toughest time. They're frequently low-down-payment bidders. FHA loans might also require sellers to do more home repairs than do other loans, such as fixing chipped paint on older homes, Realtors and lenders say. If sellers receive multiple offers, they may avoid FHA offers.

"FHA buyers are getting pushed to the bottom of the pile," says Brian Cross, a Phoenix-area Realtor for Keller Williams Realty. "It's much different than a year ago."

Even first-time buyers with conventional loans and 20% down payments have been surprised by the competition.

"I thought it was a buyer's market ripe for the picking," says Jason Leggett, 25, an aerospace engineer at John Hopkins University Applied Physics Laboratory near Washington, D.C. He recently bought his first home, beating four other bidders.

Before that, he'd lost out on six offers. He probably won his $459,000 colonial because he had guaranteed financing, Leggett says.

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