Many first-time homebuyers are sitting on the sidelines of the U.S. housing market, hampering its ability to gain traction.

Last month, 34 percent of existing-home purchases were made by first-time buyers, according to the National Association of Realtors. In January, they were 29 percent of the market, the lowest since NAR surveys started tracking them monthly in late 2008.

In healthy markets, first-time buyers make up 40 percent to 45 percent of all purchasers. They play a critical role in buying starter homes so those owners can buy more expensive homes.

Despite low mortgage rates and falling prices in many markets, existing-home sales have been weak for months and were down 2.8 percent in February from a year ago.

What’s keeping more first-timers at bay:

Expired tax credits. Federal credits boosted home sales in 2009 and 2010 and lured some first-time buyers into the market sooner than normal.  The credits expired in April. Last March, 48 percent of buyers were first-timers and it’ll take some time to rebuild that pipeline.

Lending standards. Tighter lending standards since the housing bust are edging out first-timers who can’t meet credit or employment history requirements in a still-weak economy.

Higher credit standards are reflected in loans bought by government-backed mortgage giants Freddie Mac and Fannie Mae. Last year, loans in Freddie Mac’s portfolio had an average credit score of 758. That was up from 720 five years ago.

Many lenders are also requiring higher downpayments. The best terms kick in with 20 percent or more down. Higher down payments are driving more buyers to Federal Housing Administration loans. The FHA requires as little as 3.5 percent down for borrowers with good credit scores. In fiscal year 2010, FHA loans were 19 percent of the home purchase market vs. 14 percent a decade before.

Competition. In February, cash buyers accounted for a record 33 percent of existing-home sales as the National Association of Realtors indicate. In some areas, cash buyers now account for more than half of existing-home sales. Sellers often prefer cash offers because they’re more likely to close.  One listing agent recently had one listing with six offers: one cash, two with 20 percent downpayments and four FHA, which often means first-time buyers.

The seller didn’t even consider the FHA offers.

If you are a first-time homebuyer, what has been your experience so far?

Related posts:

1. Florida in 2010: Rent or Buy a Home?
2. Florida Existing-Home Sales Continue to Improve in April 2010
3. Over 64,000 Florida Buyers Claim Tax Credit
4. Florida Real Estate, Existing Home and Condo Sales Up in December 2010
5. Florida’s Existing Home, Condo Sales Up in January 2011