Eighty-two percent of first-time buyers offer less than 20% down.

It’s like quicksand for most first-time buyers. Bidding competition is as fierce as ever. Larger down payments and all-cash buyers are winning those bidding wars. No-sale again and again.

Talk about discouraging.

After a while, it becomes so demoralizing, some just give up on their homeownership dreams.

One reason homebuying is so challenging is the inventory of homes for sale is perhaps at the lowest point ever. Property hoarding further depresses that inventory number: Why should real estate investors sell when values are rising by the day?

COVID-19 also has created a sea change in consumer thinking and habits. There’s less travel, and demand is higher for the more spacious single-family detached home for those stuck in closed quarters with the common walls of apartments and condos.

At the same time, the monthly principal and interest cost for first-time U.S. homebuyers has increased 55% from January 2013 through the second quarter of 2020, according to a recent first-time buyer market report from Genworth Mortgage Insurance.

The median price for first-time homebuyers in California is $510,000, compared with $580,000 for repeat buyers, according to an analysis of mortgage rate-lock data through July and August by Genworth’s chief economist, Tian Liu.

“This is significantly higher than the national average, where median home prices are $301,000 for first-time homebuyers and $365,000 for repeat buyers,” he said.

Now the down payment and appraisal conundrum.

Home prices have taken on a life of their own, continuing to jump and leapfrog neighborhood comparable closed sales. Over and over, we are witnessing sales prices coming in well above the list prices.

Take the example of a sale in which the buyer agress to pay $700,000, but the appraisal comes in at $650,000. A first-time buyer with 10% down, or $70,000, would have to cough up $115,000 to bridge the gap between the appraised value and sales price. In my experience, that first-time buyer rarely, if ever, finds the funds to cure that gap.

But a buyer putting 30% down, or $210,000, still ends up with a 24.6% down payment ($160,000 of $650,000 plus $50,000 to cover the gap).

Even though the mortgage rate would be slightly more expensive, due to higher loan-to-value standard mortgage pricing, chances are far greater that larger-down buyer would still qualify.

Before the 2008-12 housing crisis and mortgage meltdown, appraisers could point to neighborhood trends using listed properties and properties in escrow to support their appraisals. But after the housing crisis, many reforms took hold.

Currently, appraisals require four closed sales plus two listings and/or pending sales, said Lance Siegel, president of HVCC Appraisal Ordering Service in Lake Forest.

“You can’t base value for federally funded loans on pending sales and listings,” Siegel said.

Eighty-two percent of first-time buyers put less than 20% down, Genworth’s Liu said.

Every listing agent worth his or her salt is trying to get the highest net amount for that seller. If there are no closed comparable sales, that’s a problem. Common sense tells us that you can’t squeeze blood out of a turnip.

The solution is quite simple. The appraisal rules should change. Go back to the olden days of trending. Allow the appraiser to use new listings and pending sales as supporting evidence of where the market is headed.

If that were in play, lower-down payment, first-time buyers could compete with those with bigger down payments.

The Federal Housing Finance Agency, regulator for Fannie Mae and Freddie Mac, leveled the playing field for small lenders by putting an end to volume pricing discounts for larger lenders selling to F & F. That gave small lenders equal pricing access.

Why not level the playing field for first-time buyers to give them equal access to the American dream?