Long on the fence, first-time homebuyers are hopping into the market at levels not seen in nearly a generation.
According to Genworth Mortgage Insurance, first-time buyers gobbled up 601,000 domiciles in the third quarter of 2017, a 6% year-over-year surge, accounting for a purchase-column rate not seen since the third quarter of 2000.
The surge included these eye-catching numbers: First-timers accounted for 40% of all single-family houses sold, and a whopping 56% of all purchase mortgages financed.
Surprised? Not if you’ve been in the business since before that last historic wave, like Tampa Realtor-agent Peggy Whitten Diaz.
“All it takes is a serious rumble of interest rates rising and then a bump up,” she says, “and all of the ‘fence sitters’ come out of hiding.
“Add to that the steady rise in home values … and the subsequent shortage of rental units, first-time buyers are jumping in before it’s too late.”
Genworth Mortgage Institute chief economist Tian Liu chalked it up to “a greater sense of urgency” generated by “rental and home price inflation,” as well as “need(s) due to family formation.”
Adds Liu, “First-time homebuyers see more value in home ownership beyond a simple financial return on investment.”
Simple? Let’s look deeper.
It turns out this tidal phenomenon isn’t confined to the United States. In 2017, first-time purchases in the United Kingdom were at the highest pace since the record set in 2007-08, before the financial crisis.
Australia, too, is seeing a spike in first-time buyers; the government’s Bureau of Statistics revealed mortgages taken out by what it calls “first-home buyers” rose by four points, or nearly a third, to 17.6% in November from 13.3% in March 2017.
A dozen analysts will provide a dozen answers to why first-timers are all the rage. Looking for a social media angle? Here’s one: It’s an opportunity for folks — mostly millennials, apparently — to post photo albums of a life triumph for their friends to envy.
We’re not making this up. Search Pinterest, Instagram, and Facebook — to name three — and you’ll find first-timers posing creatively in their new digs.
“Millennials did start the trend,” Wilmington, N.C., Realtor Nikita Todd told WECT, Channel 6, “but, I’ll say that everyone jumped on board and it’s definitely everyone for those people who are on social media.”
On a more serious note, some cite programs at every level of government aimed at helping renters become homeowners. Despite the December tax reform act, credits for first-time buyers — some of whom might actually be first-time-after-a-few-years-renting return buyers — are still a thing.
Also, Realtor Whitten Diaz’s scenario cannot be dismissed.
But there’s a reason interest rates are poised to climb, inventories are tight, and home prices are on a steady climb, fueling first-time urgency: Not just in America, but around the globe employment is strong and wages are finally beginning to rise; despite overdue volatility on Wall Street in early February, U.S. consumer confidence has been rallying from strength to strength since June 2017, hitting levels not seen since November 2000.
In short, once more, it’s the economy, stupid.
How to Prepare for Homeownership
If you are among the thousands newly, seriously interested in homeownership, know this: While the pitfalls are numerous and not to be underestimated — for instance, leading with their hearts, first-timers tend to overpay — you don’t have to go it alone. And we’re not just talking about your friendly neighborhood real estate agent, savvy as he or she might be.
Avoid first-time homebuyer mistakes by looking for a local workshop or seminar. If waiting isn’t your style, head to YouTube for an evening’s worth of occasionally entertaining house-hunting insights.
Doing your homework means learning some of the difficult truths of home buying Calgary and homeownership, and how both differ radically from shopping for an apartment and renting. For instance, when a pipe breaks or the lights inexplicably go out, there’s no calling the landlord or the superintendent.
So there’s understanding the full cost of home owning, which includes things oftentimes included in rent, such as utilities, cable (now you really might want to cut the cord), and internet. Looking in a deed-restricted community? Don’t forget the homeowners’ association fees.
In short, being a homeowner means walking a tightrope without a net; it’s not enough to be able to maintain regular monthly payments and expenses. You need to establish and feed, routinely, an emergency fund. Because your heat pump will die. On a Saturday night. In the middle of January. And it will have to be repaired or replaced.
Affordability, affordability, affordability
The old joke about what the three most important qualities in a real estate sale — “location, location, location” — might not be true in a hot market that threatens to squeeze out first-timers trying to break in.
Instead, it might be all about affordability. Get a foot firmly on the ladder, and angle for the neighborhood you want when you move up.
Along those lines, keep an eye out for communities and builders that cater to, or have carve-outs for rookie buyers. Giants Lennar and D.R. Horton both have programs for first-timers.
What to Do about Down Payment Dilemma
Chances are you’ll get the first-house bug long before you’ve saved a 20% down payment. OK, that’s the ideal. Get over it. If you’ve run the numbers on an affordability calculator — Zillow has one — and learned you can manage the monthly impact to your budget, you might want to look into programs that can help you close with a low down payment, as little as 3.5% in some FHA cases — zero if you’re a military veteran using a VA benefit.
Try searching “first-time homebuyer” along with “down payment assistance.” Or give the clearinghouse Down Payment Resourcea shot.
Finally, do not underestimate the financing power of close relatives — what Australia’s Financial Review calls the “Bank of Mum and Dad” — who have a sentimental stake in seeing precious kinfolk living the homeowner dream (especially if the kinfolks’ dreams includes grandchildren — *wink*).
Prequalifying is your friend
You may think you know what you can afford. After all, you’ve run the affordability calculator under a dozen scenarios. But until someone who’s actually willing to underwrite your mortgage confirms it, all you have is educated guesses.
Before you set out, get yourself prequalified. And do so with a handful of lenders chosen from among the dozen or so you studied online, and the three-to-five you shopped among. Fixating on one lender — worse, the first lender with whom you talk (because the company was recommended by a friend/relative/agent) — is risky.
Other things to keep in mind
Buying a house, whether it’s your first or your ninth, is likely to represent the largest single purchase you’ve made. Like viewing the Grand Canyon for the first time, the experience can be exhilarating and petrifying in the same moment.
Accordingly, here are some other factors to keep in mind:
- Be patient. Try not to fall in love with a house that might tempt you to overpay or end up in an unsuitable neighborhood.
- Be ready with your documentation about your financial life. That’ll help things move more smoothly.
- Flexibility is key. Watch enough “House Hunters” on HGTV and you’ll figure out nobody ever gets everything they want in a house. Know, first and foremost, what’s on your “must-have” list, and what’s just on your “really want” list.
- Conquer your fear. People have been buying first houses for thousands of years, and a good percentage of them experienced every trepidation you’re feeling. As long as you have matched your home-owning desire mapped out a solid game plan, you should be fine.
Look around, after all; everybody’s doing it. Like them, you have new-home selfies to snap and share