NEW YORK ( TheStreet) -- Amid all the attention on rising home prices, let's not forget that millions of homes are still worth far less then they were at the 2006 peak. A March 5 report by CoreLogic ( CLGX), which tracks the housing market, says home prices gained 9.7% in the 12 months ended in January. But then there was this: "Including distressed transactions, the peak-to-current change in the national
home price index -- from April 2006 to January 2013 -- was -26.4%." (Distressed transactions include foreclosures, short sales and other troubled sales.) The biggest peak-to-current price declines were Nevada's -51.6%, Florida's -43%, Arizona's -38.9%, Michigan's -37.4% and Rhode Island's -35.5%. So, what's the long-term lesson here? There are many, but here's one that gets overlooked: You may be better off if the home you own or want to buy will appeal to first-time buyers. There's a simple reason: The first-time buyer doesn't have to sell a home to buy another. Unlike homeowners who want to trade up, first-time buyers don't have to worry that the housing market is slow or that prices are lower than they once were. For the first-timer, the key issues are the ability to get a mortgage and to find an affordable home that will grow in value quickly enough to be sold without a loss in three or four years, if necessary. Since the typical first-time buyer is young, a modestly priced home will probably be more appealing than an expensive one.
This doesn't mean conditions are great for today's would-be first-time buyers. Many are having trouble getting a mortgage because lenders have become very conservative. And several analyses have found that first-time buyers are having trouble competing for homes with investors. Of course, from a seller's perspective, it doesn't matter whether the buyer is a first-timer or an investor. Investors are scarfing up inexpensive homes because they appeal to renters, who are the future's first-time buyers. Any kind of demand is good from the seller's point of view. All this suggests that a modestly priced home is a safer investment than an expensive one, because there will be a better chance of finding a buyer if times get tough. Aside from modest price, what makes a home appealing to a first-time buyer? Good condition matters. Many first-time buyers are used to having the landlord take care of things and don't have the skills or interest in a lot of do-it-yourself projects. A seller trying to appeal to these buyers might consider offering a warranty. Easy resale potential can be important, too. Young homebuyers who are early in their careers want to know they won't be trapped in the home when the next job change comes along. That means that even a buyer without children may want good public schools, which make a home more appealing. Convenience to the job market is important too, and that often means being in easy commuting range of a city. Young buyers may be more inclined than older ones to focus on nightlife and abundant outdoor activities. A staid suburb might appeal to the homeowner who has kids or plans to soon, but it can look pretty dull to the potential buyer who is not yet at this stage. Most homebuyers like to be surrounded by people similar to themselves -- young singles and childless couples, or families. As the housing market gets stronger, all types of homes will sell, but the home that will appeal to the first-time buyer could well be a safer bet. Though a nationwide collapse in home prices is rare, it's not at all uncommon for local markets to run into trouble.