How are first-time buyers coping with mortgage market challenges?

New entrants continue to account for significant market share

How are first-time buyers coping with mortgage market challenges?

The challenges facing US homebuyers in the current market are well documented, from high interest rates to lack of supply and affordability concerns – but there are still opportunities at present for first-time entrants.

That’s according to Rebecca Richardson (pictured), an originator with Kind Lending, who told Mortgage Professional America that despite the bumpy current outlook, new buyers were expressing plenty of interest in purchasing a home.

Needless to say, converting those intentions into ink on paper usually requires a detailed discussion with a mortgage advisor about how to put homebuying plans into practice, Richardson said.

“I’m seeing more [first-time buyers] than we did certainly in 2021, even into kind of ’22,” she said, “just because for the buyers that can get comfortable with where the market is with sales price and rate, we’re able to have this conversation of, ‘How do we get strategic?’”

Aspects like the home price and rate are, of course, important – but they’re not the only considerations when it comes to lining up a home purchase for a first-time buyer, according to Richardson.

The good news for those purchasers is that a less frenzied market means competition isn’t as intense, with less chance of getting drawn into a bidding war with multiple other offers.

“It’s not just the price of the home. It’s not just about the rate,” Richardson said. “Yes, those are factors – but how do we look at it holistically [with] seller concessions or some sort of give and take?

“They have a better fighting chance because there’s not as much competition. There’s a chance to help seller concessions bridge some of that gap where they don’t feel like they’re completely exhausting their savings on down payments and closing costs.”

First-time buyers gripped by FOMO as prices continue to rise

For first-time buyers, purchasing a property has always to some extent involved taking a leap into the unknown and making a calculated risk.

Caution and trepidation about buying a first home are entirely natural – but the current crop of new entrants to the market seem increasingly ready to take that risk, Richardson said, in the understanding that it’s a necessary rite of passage on the way to homeownership.

That’s because fear of the unknown is being superseded in some cases by a sense that sitting on the sidelines for too long could see the dream of owning a home slip even further out of reach.

“Over the years, a lot of times with first-time homebuyers, although there was a certain amount of anxiety… it was kind of a foregone conclusion that there would be a home,” she explained. “I think that’s unfortunately changed.

“I think that for some of them, there’s still very much that fear… But I think what looms larger is almost the fear of opportunity lost or opportunity missed: ‘I should have bought years ago, but I didn’t. So I’m not really excited about this, but this is what I need to do if I want to have a small snowball’s chance of ever being a homeowner.’”

How much of the market is made up of first-time buyers?

First-time buyers appear to represent a prominent and growing cohort of the US mortgage market. According to the National Association of Realtors’ latest Profile of Home Buyers and Sellers, new entrants to the market made up 32% of buyers last year – an increase of 6% from 2022.

Those homebuyers are also becoming younger, with the median age for a first-time buyer ticking down from 36 in 2022 to 35 last year – and their typical down payment amount is also spiking.

In 2023, first-time homebuyers typically made a down payment of 8%, NAR said, marking the highest percentage of a sale amount since 1997.

That figure is still much lower than the standard down payment for repeat buyers (19%). But unsurprisingly, bidding wars can put new buyers at a disadvantage – “first-time buyers… may need to have a stronger offer among all-cash buyers and among repeat buyers as they have increased housing equity,” NAR noted.

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