This Is the No. 1 Reason First-Time #Home #Buyers Are Wading Into the Hot #Housing #Market

The housing market is so hot right now that even modest starter homes are receiving multiple offers going six figures over the asking price. But the high prices and lack of homes on the market don’t seem to be stopping many first-time buyers from throwing their hats into the ultracompetitive ring.

The top reason that almost two-thirds of millennial and nearly half of Generation Z home buyers are willing to jump into the scrum is to achieve the American dream of homeownership, according to a recent realtor.com® survey. More than 800 people who planned to buy their first home in 2021 participated in the survey.

“The challenge that first-time home buyers are facing is the tremendous shortage of homes for sale, which is really creating a downward spiral in affordability,” says realtor.com Senior Economist George Ratiu. “They’re competing with trade-up home buyers who are bringing their home equity to the table and investors who are flush with cash. [That] makes it extremely difficult to place a successful offer.”

About 43% of first-time buyers have been looking for a home for more than a year, competing with other buyers seeking more square footage than they could find in the cities and those who were planning to buy even before COVID-19.

The respondents’ top reasons for pursuing homeownership are the desire to own their own abode, to be able to invest in a property they can improve, to get more space, and to build equity.

Home buyers who are persevering in this challenging climate have made the location of their future homes their top consideration. The aspiring homeowners also value being somewhere relatively quiet with a big backyard and a garage.

“The pandemic likely only reinforced the value of homeownership,” says Ratiu. “It’s provided a haven that most of us were able to work, take care of the kids in.”

However, the challenges to reaching those goals in this tough market are daunting. The biggest obstacle these younger home buyers are facing is not having a large enough down payment, as many grapple with paying off student loans or finding a home within their budget. That’s particularly challenging as median home list prices jumped 14% in February, to hit $353,000, according to realtor.com data. In addition, mortgage interest rates, which had fallen to record lows, are rising again.

Despite the generally lower prices, just 11% of first-time buyers are willing to purchase fixer-uppers. About 43% want a move-in ready residence, which typically costs more.

This year’s rising mortgage rates, which make those monthly mortgage payments ever more expensive, are expected to temper the insane home-price hikes, simply because many buyers simply won’t be able to afford to engage in bidding wars.

While prices aren’t expected to drop, the crazy-high price increases and offers over asking could calm down, especially if more homes go up for sale.

“If household incomes do not rise in a meaningful manner as the economy reopens … the price trajectory isn’t sustainable,” says Ratiu. “I expect price growth to slow down as we move through 2021.”

The post This Is the No. 1 Reason First-Time Home Buyers Are Wading Into the Hot Housing Market appeared first on Real Estate News & Insights | realtor.com®.

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