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Here’s Why It Just Got Harder To Buy Your First Home
The prices of starter homes are skyrocketing, making it significantly more difficult for first-time buyers to break into the competitive real estate market.
Just when it seemed like the insanely high housing prices that were caused by the economical upset that came with COVID-19 were finally dropping, the luck of first-time homebuyers took a serious blow. It seems like the real estate market is saturated with starter homes, or smaller homes that are between 750 and 1,750 square feet and typically more affordable. As availability for starter homes surged, the average purchase price for homes under 2,000 square feet jumped by 18.6% in July of 2021. Nationwide, the median listing price for homes of all sizes is almost $400,000, which is 10% higher than the same time last year. For budget-conscious homebuyers and first-time buyers, this price increase could cause their home owning dreams to come to a frustrating stop, at least for the foreseeable future.
To understand the severity of the financial blow the price increase causes first-time buyers, you must understand their plight. First-time buyers are often early into their professional careers, and have been saving for a long time to have just enough finances to afford a competitive downpayment on a starter home. They can’t rely on the profits from the sale of their previous house to help buy their desired property. The average first-time homebuyer has to save for approximately 6.5 years to have enough funds to put down a 20% down payment, and aren’t usually ready to buy until they are in their mid-thirties. With the prices of starter homes skyrocketing, first-time buyers who thought they were ready to buy may be forced to halt their purchase plans and go back to saving. While there are some government backed loans that allow first-time homebuyers to purchase homes with no money down, such as VA and USDA loans, the lack of a down payment can make these offers seem less appealing to sellers and result in buyers paying off their homes’ mortgage for much longer.
However, all hope is not lost for first-time buyers. A bit of good news for prospective homebuyers is mortgage rates have dropped to record lows. This may make it easier for buyers to get approved for home loans and means that monthly payments will be lower than normal, which leaves more funds to put into savings, entertainment, vacations, or other necessities. It’s also important to note that the current market conditions won’t stay this way forever. Real estate experts have been keen to point out that the COVID-19 pandemic has thrown the housing market severely off balance, and it will be a long time before buyers notice it returning to normal. That said, it will eventually regain normalcy, although it may temporarily halt house hunting for first-time buyers for now. If your plans have been put on hold, it may be wise to use this time to do some soul searching and think about your game plan for the future.
If you are a first-time buyer who refuses to put your dreams of owning a house on hiatus, you can always reach out to a knowledgeable realtor in your area who may be able to provide you with guidance or insights that will allow you to purchase sooner. You could also consider buying your first home in an area that’s less in demand than where you were initially searching or think about choosing a fixer-upper, both of which may make the home you purchase more affordable. With the popularity of remote work and hybrid work schedules that allow people to work from home all or most of the time, you may not need to live in city hubs where prices are typically highest because housing is most in demand. To learn additional tips and tricks that will help you stand out as the perfect homebuyer when it’s time to make an offer, click here!