How can first time homebuyers navigate today's market? Saving for a down payment can be difficult, but buying a home might be more realistic than you think!
Can First Time Homebuyers Compete in Today's Market?
Everybody's heard it all over the Real Estate world, "It's a seller's market." It's true, we've had some very strong growth over the past few years- so good that home prices have organically grown to the numbers we saw in 2004/05. It's great! The economy is booming and consumer confidence couldn't get any better than this. But what about the Millenials just looking to enter the market? Are they able to compete?
Traditionally, seller's markets are created by a lack of inventory which drives up the cost of homes, Economics 101- Supply & Demand. It's not that people aren't selling their homes, but that their homes are selling fast! How can first time homebuyers possibly compete in this market where we're seeing multiple offer situations and homes listing and selling in a week or two? They have student loans they're paying off, a car payment every month (not to mention insurance), living expenses and they've been renting for a few years. They have a good job but how can they afford a home, those things cost a lot right? Is there any hope?
The answer is a resounding "YES!"
The truth is, this seller's market thing has just about run it's course. In just about every zip code we're seeing prices taper off, even decreasing in some areas. Homes are spending more days on market and that means more supply- back to the Economics 101- Supply & Demand. Soon you'll be hearing about how the market is declining and people should sell fast before they lose equity in their home, or you should wait to buy because in another year or two it'll be much cheaper! Don't panic. You know when you want to buy and you know when you want to sell. This correction is normal, it's healthy. It has to happen.
Sure, maybe now is the perfect time to sell, we're at the peak ofg the market. But now is also a great time to buy! Because if there's one thing that's spread just as well as "It's a seller's market," it's that "Interest Rates are rising." Right now the interest rate on a 30-year fixed mortgage is hovering just above 5%. Seems like alot compared to the 3% we've been talking about in recent history, but let's comparer this number to where we were in the 80's and 90's. In those markets interest rates were 10%, 15%, or even 20%! Can you believe that? Now tell me a 5% interest rate is high, I dont' think so.
20%, where else have you heard this number? That's how much you need to put down to avoid Private Mortgage Insurance (PMI). National research shows on average this will take today's first time homebuyer 10 years to save- sounds pretty optimistic if you ask me. Let's say you want to buy a house that costs $200,000. That's $40,000 down! In reality, you can buy that house with a fraction of the down payment. Here's how.
Let's say you want that $200,000 house. You can buy that home with $7,000 down (3.5%). This is your standard FHA mortgage. Sure, lenders have their closings costs but if you find a good one they'll be able to keep those low for you. That's it. You've got a beautiful $200,000 home with what you've managed to save after college, even with all your othew revolving credit!
But wait, there's more:
The State of Michigan offers numberous First Time Homebuyer Programs, check them out here: MSHDA Homebuyer Program Eligibility
Many banks also offer their own programs that have minor differences in program and eligibilty so check with your preferred local bank as well.
Did you know?
Detroit is ranked #3 by Business Insider in affordability for first time homebuyers nation-wide?
Kentwood, MI (49508) has been deteremined to be the hottest zip code in the country. And guess who's driving that market- Millenials.