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“While investors drain the market of lower-end properties, builders are [catering to the wave of affluent buyers by] constructing more expensive houses that generate bigger profit,” Mr. Puplava said. That combination is “putting homeownership out of reach for many Americans,” especially in high-priced residential areas on the East and West coasts.

Dearth of first-time buyers

In normal economic times, a steady flow of first-time buyers would be providing a powerful boost to the market. Since the Great Recession, though, young adults have been held back by double-digit unemployment and a cumulative student debt load totaling over $1 trillion. That has forced many members of the millennial generation to postpone home purchases and continue living with their parents or other relatives.

The proportion of 18- to 34-year-olds living with their parents has jumped to 31 percent from 27 percent before the recession, according to the Census Bureau. Along with other financial obstacles, that drove the share of first-time buyers in the market to a record low of 26 percent this year, down from 40 percent in previous years, according to the National Association of Realtors.

The scarcity of first-time buyers has prevented the chain reaction of linked sales that fuels housing growth, said real estate analyst Barry Ritholz. Owners of starter homes find it more difficult to find buyers and trade up.

Moreover, millions of owners have no equity in their homes because they bought at the height of the housing bubble in the mid-2000s or have so little equity that they cannot trade up to more expensive homes without putting down additional cash, making them reluctant or unable to offer their homes for sale.

That has led to a paradox of too few houses on the market, creating bidding wars on properties and putting prices further out of reach for first-time and credit-constrained buyers, Mr. Ritholz said.

“Beyond the first-time buyers, there are problems with the links in the home-selling chain,” he said. “As households have been deleveraging from the mid-2000s credit binge, they also have maintained a low savings rate. Combine that with relatively low household equity — as well as no-equity and underwater households — and you end up with a housing market that lacks a crucial ingredient for a robust recovery.”

Economic growth at stake

Even so, many economists hold out hope that the housing market will resume growth this year and continue to bolster the economy. Housing growth historically has been an essential ingredient for igniting and maintaining economic expansions in the U.S.

“The importance of housing on the broader economy shouldn’t be understated,” said James Frischling, president of NewOak Capital. The combination of stingy lenders and weak borrowers “doesn’t bode well for the housing market,” he said, but he is optimistic that lenders will loosen their standards and enable the market to grow again.

“With so many banks looking to put money to work, this may yet prove to be a buyers’ market — with some patience,” he said.

But Pater Tenebrarum, a hedge fund analyst, said the seeming recovery in the real estate market in 2012 and 2013 was nothing but an “echo bubble” fueled by the Fed’s lenient policies and the government guarantee on more than 90 percent of mortgages made since the recession through Fannie Mae, Freddie Mac and the Federal Housing Administration.

The Federal Reserve has been purchasing Fannie’s and Freddie’s mortgage bonds for several years to drive down mortgage rates. A year ago, rates on 30-year loans reached a record low near 3 percent.

In the Fed’s move to gradually reduce and end those purchases starting in December drove rates to over 4 percent and precipitated the market slump.

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