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How Has the First Time Home Buyer Profile Changed Over Time?

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If asked to describe the profile of the average “first-time home buyer”, many Americans may use descriptions such as young, newly married, young children or children on the way.  There is an idea that many have about who these would-be buyers are, what stage of life they are in and it appears it is an out-of-date perception. 

Researcher at Harvard completed a study of first time home buyers over a span of 20 years, from 1997-2017 and found some significant changes in the demographics of first time home buyers over those years.  In the paper detailing the study findings, it was stated, “While discussions of first-time home buying often tie home ownership entry to life-stage changes like marriage and the birth of a first child, a growing share of first-time home buyers do not fit this profile”.

An article published by The Wire summarizes the most telling comparison of how many first-buyers were unmarried in 1997, which was 23% of all first time home buyers, compared to a 12% increase by the time 2017 rolled around.  That year, 35% of first time home buyers had never been married.  Married home buyers made up 61% of the first time home buyers in 1997, but only 52% of first-time home buyers in 2017 were married. 

What hasn’t changed much in the span of the study, the age of first time home buyers which decreased from 34 to 32 between 1997 and 2017.  The findings reveal facts that, “suggest that there may be a fundamental shift in the way that young households are approaching first-time home purchases, such as an increased willingness to purchase homes individually or with unmarried partners”. 

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Why is the Number of First Time Home Buyers Declining?

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With reports of continued low mortgage rates, many might assume the housing market would be booming with home sales.  However, it would seem that some other economic factors are affecting potential home buyers’ decisions.

The number of adults planning to purchase a home has dropped 2% since last year, and the number of first time home buyers among the groups looking to purchase a home is down 5%, from 63% in 2018 to 58% this year.  According to an article published by CNBC.com, written by Anne Cusak, a lack of affordable home coupled with worries about the economy and personal economic stability are to blame.

According to Rose Quint, the National Association of Home Builders assistant vice president for survey research, “…potential buyers are held back by the lowest levels of affordability in a decade.”  Many first time home buyers are limited in their budget; as home prices increase, they aren’t necessarily able to keep up.  Since the lower end of the real estate market has seen the fastest price increase, these home buyers are being priced out. 

Even if the home prices are within reach and the mortgage rates continue to stay low, prospective buyers are less than eager to jump in when they feel their personal finances are on shaky ground.  Cusak notes, “Buying a home is an incredibly emotional experience, and potential buyers will often pull back when they have the slightest fear of losing their jobs or losing any income.”

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Possible Cost Savings for First Time Home Buyers

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Buying a home is expensive, buying a home for the first time is overwhelming and the costs can be surprising and cause some to think twice before signing the papers.  There is good news for first time home buyers; they may be able to save some money when purchasing a home.  Specifically, some may be able to qualify 25 basis-point discount on the FHA mortgage insurance.

The Housing Financial Literacy Act of 2019 passed in the House of Representatives earlier in July.  This bill’s purpose is to encourage first time homeowners to complete a program to educate them on the home buying and home ownership experience in order to promote sustainable homeownership.  Buyers that complete this training could qualify for the discount, but the bill needs to pass the Senate’s vote and move on for presidential approval.

According to an article published by HousingWire.com, although some experts are concerned the discount could have a negative impact the FHA’s insurance fund, many agree that promoting education about home buying and ownership is vital in helping more American’s have a positive homeownership experience. 

“Whether you are managing your credit, creating a budget, saving for retirement, or purchasing a home, understanding the basic principles of planning, saving, and investing for the future is vitally important,” Rep. Joyce Beatty, D-OH, who presented the bill, said. “Studies show that pre-purchase housing counseling equips first-time homebuyers with the much-needed financial skills and tools to make informed financial decisions that ultimately benefit not only their families, but also the surrounding neighborhood and our entire economy.”

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What Regrets Are Most Common Among New Home Buyers?

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In an article published by TheMReport.com, a study from Zillow revealing some of the top regrets of home buyers are described.  To begin, it seems that younger, and possibly less experienced, home buyers are more likely to feel some sort of remorse after purchasing a house.  In fact, 81% of home owners under 34 years old have some sort of regret. 

The article states, “Zillow notes that the lower level of satisfaction among younger buyers could be due to their inexperience with the home buying process. Additionally, many of these buyers are likely still living in their first home, and 29% of young homeowners regret rushing the process, compared with 12% of older buyers.” Another source of regret for buyers is a higher than desired mortgage rate and the type of mortgage they were able to secure. 

Very few homeowners, however, report wishing they would have simply rented instead of buying.  “The American Dream of homeownership is still alive and well, and younger buyers who are building families and forging their careers must stretch their budgets to achieve it,” said Zillow Director of Economic Research Skylar Olsen.

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Surprising New Trends Revealed in Recent Home Mortgage Data

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Freddie Mac recently released data on mortgage trends for the first quarter of 2018.  One figure that may surprise many:  almost half of new mortgages in the first quarter of 2018 were secured by first time home buyers.

According to the National Association of Realtors, the age of these first time home buyers is around 32 years old.  It would, therefore, seem that these first time home buyers are, in fact, millennials.  A generation entering the economy with student debt, rising home prices, rising interest rates and a shortage of homes for sale, many would not have expected them to account for 46 percent of the new mortgages.

According to an article written by Phashant Gopal published by Bloomberg, with the improving job market and access to easier credit regulations, this group has been moving out of the rental market and becoming home owners.  These young adults are aware that mortgage rates and home prices are increasing and have decided to enter the home ownership ranks before they are priced out.

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Photo Credit: Investment Zen

 

 

 

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Disappointing Sales Figures for New Homes Reported

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In many parts of the U.S., sales of new homes continued to have a downward trend in February, falling .6 percent from January.  This, according to an article published by CNBC, is the third month in a row that the sales of new homes dropped.

In the article, the details of regional new home sales were provided.  Bringing the U.S. average down were the Midwest with a 3.7 percent decrease in sales as well as the west, with a drop of almost 18 percent.  The south and northeast regions of the U.S., however, saw increases in new home sales of 19.4 percent and 9 percent respectively.

An overall slow-down in sales is being attributed to a shortage of homes, specifically lower priced homes.  As a result, the prices are being driven up, the median price of new homes is up almost 10 percent from last year.  Couple this with rising mortgage interest rates, many first time homebuyers may have a difficult time entering the real estate market.

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Sound Advice for First Time Home Buyers

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The real estate market has been improving significantly over the past several months.  Home prices are on the rise and homes aren’t sitting on the market for very long before going under contract.  This is great news for home sellers, but challenging for those looking to purchase a home.  First-time homeowners might find the conditions overwhelming and intimidating.

CNN Money published an article written by Beth Braverman which outlines several mistakes first-time home buyers make and tips for avoiding these pitfalls.  Important reminders noted include getting pre-approved for a mortgage early in the home buying process, not maxing out the mortgage limit provided by the lender and keeping emotions out of the decision making process.

It is highly recommended that all prospective home buyers get pre-approved for a mortgage early in the home buying process.  It allows the buyer to have an idea of how much money a bank is willing to lend them for a home.  As Braverman points out, “Second, it shows sellers that you’re serious and gives you slightly more standing if you’re competing for homes with all-cash buyers.”  This can be an important advantage in a competitive market.

However, upon receiving a pre-approval, home buyers maybe anxious to bump their budget up to the maximum amount the bank has approved.  It is wise to review a detailed budget to be sure the monthly budget can handle the mortgage payment, including potential income changes and other unexpected housing expenses.

As the home search continues, there will be bumps in the road, houses lost to other buyers or dream homes priced just outside the budget.  Braverman warns, “In that kind of environment, it’s easy to fall in love with a house that’s out of your budget, or get caught up in the heat of a bidding war and end up paying more than you expected.”  Being level headed and taking emotions out of the decision making process will ensure financially wise decisions are made.

For more details and additional tips, read the entire article.

 

 

 

Photo Credit: Merio

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Expect A Surge of Young, First-Time Home Buyers Into 2020

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Over the past fifteen years, the percentage of first-time home buyers that fell between the ages of 20 and 29 has increased from 17 percent to 28 percent of all buyers, according to TransUnion.  Following the same trend, first-time home buyers between the ages of 20 and 39 increased 16 percent in that same 15 year span; ultimately, the age group made up 60 percent of all first-time home buyers by the end of 2015.

An article published by The M Report by Brian Honea indicated that TransUnion anticipates up to 17 million first-time home buyers will enter the real estate market over the next five years.   With this influx of new homeowners comes positive economic news for both local economies as well as the mortgage lending industry.

FotoFlexer_Photo Joe Mellman, VP and Mortgage Business leader for TransUnion, explained  that first-time home buyers help to
improve the local economic activity as a result of increased construction and home improvement demand.  Mellman also describes, from the perspective of mortgage lenders, “First-time home buyers are valuable prospects in the eyes of many mortgage lenders, as that time in a borrower’s life often corresponds to additional financial needs,”.

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Photo Credit:  Renaude Hatsedakis

 

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