First-Time Home Buyers Missing Out on Housing Recovery

Tougher lending standards squeeze out potential borrowers.

Roof line of a house with gabels
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According to Robert Simons, a professor of urban planning at Cleveland State University, FHA is now behaving like the big banks by avoiding borrowers who give the slightest hint that they might not be able to keep up with payments.

"Their taste for risk is complicated by how their overall portfolio is doing," Simons says, referring to the $16.3 billion shortfall. "If they have a lot of defaults, they will continue to have an unacceptable level of capital."

[Read: 6 Tips for a Budget-Friendly Home Makeover.]

Changing attitudes toward housing. Simons says first-time buyers might be avoiding the housing market because of the hangover from the housing crisis. He says they are turned off by the unpredictability of the investment. "People are disillusioned. They don't see appreciation like they once did," he says. "There's a false hope of growing wealth in a house. People are being more selective about where they buy."

Simons also believes the culture of foreclosure that persisted throughout the crisis has negatively influenced attitudes toward the housing market. "People who went through it themselves, or know people who went through it, are definitely turned off. People who defaulted will not buy quickly," he says.