The degree to which a homebuyer can afford a house depends greatly on whether the buyer already owns a home, according to a report  released Thursday by Mark Fleming, chief economist at CoreLogic .
After a few years in a favorable market, first-time buyers are starting to face a tougher time, Fleming reports. The market overall is being affected by the intersection of rising home prices, rising interest rates and stagnating incomes, which puts first-time buyers behind the curve that has benefitted them greatly since 2007.
According to CoreLogic, affordability—the measure of buyers' ability to purchase a home and make a down payment given their income and the prevailing interest rate—was low in the early 2000s, particularly in the four years between 2003 and 2007, when market prices rose modestly and interest rates were as high as 8 percent. Then in 2007, home prices started to decline. The situation was exacerbated by the Great Recession, leading to a sharp drop in housing prices, open markets and historically low interest rates through 2012 and 2013.
In that time frame, Fleming says, the drop in housing prices and interest rates created a market that first-time buyers could take advantage of. But with the economy growing, despite relatively flat incomes, first-time buyers increasingly face higher home prices in drier markets.
This news, when taken with historical perspective, is hardly the "affordability shock" some economists make it out to be, Fleming says. Yes, affordability (as measured by the National Association of Realtors' Housing Affordability Index ) is down as much as 22 percent from its January 2013 peak, but is still far higher than it was in the early 2000s.
Moreover, Fleming says, there is almost no change in affordability for buyers who already own a home. The simple reason is that existing homeowners have equity that can be directly transferred to the purchase of a new home, meaning that existing buyers—particularly those in good financial standing—have fewer concerns over making down payments or establishing new mortgages.
Whether current trends will make houses unaffordable to most buyers by the end of 2014 remains to be seen, Fleming says. But he is sure of one thing—whatever happens, first-time buyers will be the ones who feel it the most.