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First-time buyers continue to grow more common, still face same issues

September 22, 2017

One of the biggest obstacles for would-be buyers of all types in recent months has been an ever-tightening supply of homes for sale. The limited inventory creates significant bidding wars and generally makes it more difficult for people to buy homes, but that may be particularly true for first-timers who likely have smaller down payment capabilities and other financial constraints. However, at this point, that doesn't seem to have dampened their enthusiasm for getting into the market.

By and large, first-time homebuyers today are younger adults who are entering the market after years of saving in the wake of the recession, but their buying power seems to be growing, according to the latest First-Time Homebuyer Report from Genworth Mortgage Insurance. In the second quarter of the year, these people bought about 570,000 homes across the U.S., up from just 426,000 in the first three months of the year. That's also the highest number seen in a single quarter since the same period in 1999, when first-time buyers purchased roughly 599,000 homes nationwide.

"First-timers' buying power seems to be growing."

However, there's still plenty of ground to make up, and that could portend good things for the market overall, the report said.

"Whether one looks at the three million missing first-time homebuyers since 2007 or the historically low homeownership rate among young households, the potential growth opportunity remains large and will likely take years to play out. The current housing cycle will be defined by first-time homebuyers," said Tian Liu, chief economist for Genworth Mortgage Insurance.

A shortage of options
Because so many first-timers have limited homebuying budgets, it's likely they will encounter difficulties finding homes they can afford going forward, according to Zillow. The cost of buying is on the rise as home prices continue to climb past all-time highs, and experts further predict mortgage rates will rise before the end of the year. With this in mind, though, buyers with incomes in the lowest one-third of all consumers can expect to pay 23 percent of their annual incomes for ongoing mortgage costs on homes priced in the bottom third of the nation's inventory.

That issue is particularly problematic for lower-income buyers in major cities across the country, the report said. For instance, buyers in the bottom third looking to buy in Los Angeles would have to pay nearly 80 percent of their incomes to afford their mortgage, an amount that is clearly unfeasible.

"Average square footage is up more than 20%."

Other housing trends
Another issue that could impact asking prices is buyers generally seem to want larger homes than they used to, according to a separate Zillow Report. The average square footage of all homes sold is now up more than 20 percent versus where it was in 2000, at about 2,500 square feet. Meanwhile, the average size of the lots on which these houses are built has dropped 13.1 percent.

With these issues in mind, first-timers must be vigilant when it comes to finding a home that fits both their budgets and their needs, especially as competition remains heated coming out of the summer buying season.

 

 

 

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