What are the Top Problems Keeping First-Time Home Buyers from Buying?
It should come as no surprise that there are barriers to people becoming home owners for the first time. If you look at Millennials, by age 29 the average Millennial earns $35,000 a year. With student loan debt, it would be very difficult to save 20% for the down payment but is that what’s keeping (young) first-time home buyers out of the housing market or is there another reason?
Over the past four years the biggest self-reported problem in becoming a new homeowner was in finding a home that suited their needs. The inventory was low for the number of people looking. In July of 2016, the National Association of REALTORS(R) estimated we had a 4.7-month supply of homes. Six to seven months worth is considered the ideal for a balanced supply-demand market. Today, the inventory is slowly starting to grow in certain sections of the country like Burlington, Vermont, while we’re seeing housing shortages in places like Asheville, North Carolina. Some areas have lots of inventory but it’s priced above the average first-time home buyer’s reach.
Finding the Perfect Home
First, people are looking. In August of 2016, there were 16% more potential home buyers logging into realtor.com than there was the previous year. And yet actual sales were down 8% year over year. Inventory is a problem in some markets but what else is going on?
Today’s first-time home buyers aren’t interested in starter homes. According to an insights report by Bank of America, about 75% of first-time home buyers want a home with long-term options. They’re not looking to make sacrifices on some things so that down the line they can have the home of their dreams. They want it now. But can they afford it now?
Down Payments and Credit Scores
In numbers garnered from August 2016, nearly 10% of first-time home buyers have difficulty qualifying for a home loan, even with the loosening in restrictions on down payments. The imbalance between supply and demand has also driven prices up.
Credit scores have become a larger problem for first-time home buyers. In 2015, 9.7% of buyers faced this issue. Now that number has risen to 19.5% as of August 2016. That’s nearly 20% of applicants facing issues with credit scores.
Although there are more people looking for homes than last year, many of them are just beginning the process and unwilling to make a decision that will affect their lives for years to come until they see more of what’s out there. In August of this year, 51% of those looking at homes designated themselves as early first-time buyers.
This number is at once good news for the real estate market and bad. While it’s wonderful to see people coming off of the sidelines (last year only 35% of them admitted to being first-time home buyers), we’ll have to watch to see if those in the market become purchasers. Many pundits called for election market jitters to slow housing sales but that didn’t really happen to the extent it was expected. Now that the U.S. has picked its next president we’ll have to see where it goes and if the above problems get worked out.