The marginalization of the middle class: Thank you banks!

The following article was written by Roy Oppenheim, Oppenheim Law for Yahoo! Homes and republished in The South Florida Law Blog.

Once the foundation of the real estate market, first-time middle-class home buyers are finding themselves pushed out of the housing market.

Not only are those of the middle class unable to obtain financing from banks, but they also must compete for their dream home with all-cash buyers, foreign investors, and hedge funds that have been gobbling up the limited supply of homes making their way onto the market — all thanks to the banks.

Without equity from the sale of an existing home, first-time homebuyers must dip into their savings for a down payment and with the economy in a free fall for the last few years that savings has dwindled.

According to the National Association of Realtors, first-time buyers have represented around 40 percent of home sales during the last three decades, but in the last year, that fell to just 30 percent.

American dream dashed
Even after years of declining home prices and record-low mortgage rates, middle class households are finding it increasingly difficult to live the American dream.

Where once the middle class helped to drive the economy and lead the country out of difficult financial times, the decline in home values, and subsequent crash of the real estate market, has made it virtually impossible for the middle class to take the lead this time around; even as the economy starts to improve.

Oh yeah, and let’s not forget the fact that many people lost their jobs and with it the income to be able to afford a home.

Home equity lost
The Federal Reserve estimates that $7 trillion in home equity was lost from American households between 2006 and 2011 due to the housing crisis. In 2012, a total of $192.6 billion in wealth was lost due to foreclosures across the United States.

Many have already forgotten that it was the banks that got us into this predicament. They are the ones that saddled borrowers with deceptive mortgages they couldn’t afford. And, when these homeowners no longer could pay, it was the banks that engaged in fraudulent activities (robo-signing) to take back the homes that they never should have financed in the first place.

A recent article in the Wall Street Journal notes that many of the products such as no-money down mortgages that led to the housing bubble and subsequent burst no longer are available, making it impossible for first-time homebuyers to obtain financing.

Lending tightens The same lenders who once lured first-time home buyers with their too-good-to-pass-up financing have become significantly more circumspect about to whom they will lend. Let’s face it, without financing, most first-time buyers aren’t going to be able to enter the market.

The first time home buyer has always been the most important buyer in the market, because they are the ones that start the dominoes falling for larger purchases. Without them, exiting homeowners can’t sell and move into more expensive homes and pump more money into the housing recovery.

What’s the takeaway? We are experiencing the marginalization of the middle class. Without first-time home buyers, not only will the housing market recovery remain sluggish, but the entire economy will be unable to fully recover and make it to the next level.

From The Trenches

Roy Oppenheim

Real estate attorney and foreclosure defense attorney, Roy Oppenheim left Wall Street for Main Street, founding Oppenheim Law along with his wife Ellen in 1989 in Fort Lauderdale, Florida, and is vice president of Weston Title and creator of the South Florida Law Blog, named the best business and technology blog by the South Florida Sun-Sentinel. Follow Roy on Twitter at @OpLaw or like Oppenheim Law on Facebook .