First Time Homebuyers
Several years ago, first-time homebuyers accounted for approximately 40% of all home sales. However, a recent National Association of Realtors (NAR) study showed that they only account for 28% today. While this may not be a big news headline to some, it does still cause some concern for those in the real estate industry. Where have all of the first time homebuyers gone? And, why aren’t they buying?
There are a number of reasons behind this. Many people today carry a large amount of student debt. And, the slow job growth market makes it tough for young people to find well paying jobs with room for advancement. Lawrence Yun, chief economist for NAR, projects that it will take three more years before we see normal levels of first time homebuyers back in the market. With tightened underwriting standards for loans, this has also prevented many from realizing the dream of becoming a first-time buyer.
Generation Y =31%
Younger (Think Millennials)= 16%
Silent Generation= 9%
Generation Y shows the largest share of first-time homebuyers with 76 percent with that share decreasing as the age level increases.
The homeownership rate is currently at the lowest level in nearly 20 years falling in the second quarter 2014 to 64.8 percent. This startling statistic has been partly blamed on the lack of first-time buyers entering the market. While interest rates have remained historically low over the past few years, the younger generation has been up against a tough job market and more debt.
Are You A First-Time Homebuyer? Here Are Our Top Six Tips For First-Time Homebuyers
1. Make sure you define a list of must-have’s. You don’t have to stick to it like glue necessarily, but it is important to know what qualities you look for in a home.
2. Meet with a lender and get pre-approved. This can make or break a deal at times if you don’t have a pre-approval letter to go along with the offer and you are competing with other offers. It’s also important to know what you can afford and that you are comfortable with the monthly payment amount in that price range. This step will also allow you to learn more about the different loan types, terms and rates.
3. Create a budget and make sure you understand the costs that go into homeownership. What do you feel comfortable spending each month on your mortgage payment?
4. Choose a neighborhood or defined area that you can picture yourself living in. While it’s good to be open to a number of different areas, it is important to limit the search as opposed to searching an entire city.
5. Look at the bones of the house. In other words, if it isn’t empty then try to picture it empty. Many homebuyers let the current resident’s furnishings and other personal items get in the way of picturing there own décor in the space.
6. Real estate can get emotional so be prepared and don’t get your heart set on anything until the deal is done!
Your Financial House
Make sure that your financial house is in order. Know your credit score, clean up any errors and make sure that you don’t have an excessive amount of debt that could keep you from qualifying for a higher home loan. Most often lenders will require a down payment of 20 percent but this varies as some prople may qualify for a VA or other types of loans available that allow you to get in for little to no down payment. Most lenders will tell you that the normal ratio of income to mortgage payment (principal, interest, property taxes and insurance or PITI) should be no more than 28-33 percent of gross income.
While the housing market bubble crash has had an effect on what first-time homebuyers may be thinking, the road to recovery has taken place. The market is close to normal. We aren’t seeing high interest rates nor over-inflated prices. Yet, some people just aren’t buying which has led to the population of renters spiking. As the economy continues to improve, many predict that many first-time homebuyers will enter the market and find their own piece of the American dream of homeownership.
FSBOFirst Time Homebuyers