First-time home buyers have long been an important part of the housing market. And that hasn’t changed today. According to the 2012 Profile of Home Buyers and Sellers from the National Association of REALTORS®, first-time buyers accounted for 39 percent of all housing sales from July 2011 through June 2012.
But what do these first-time buyers want? In Chicago and its suburbs, first-time buyers are looking for homes that are located near public transportation and are large enough for them to grow into as they expand their families. For other first-time buyers, affordability is a key issue. These buyers are looking to work with sellers who are willing to pay for at least part of the closing costs of their mortgage loans.
These are the observations of agents in the RE/MAX Northern Illinois real estate network who are helping first-time buyers negotiate today’s housing market.
And these agents agree that first-time buyers are an important, and active, part of the Chicago-area housing scene.
“First-time buyers are my primary market at this time,” says Laurie Christofano, with RE/MAX in the Village, Realtors®, in Oak Park, Ill. “There has been a new excitement among first-time buyers during the last year. They see that we are at the bottom as far as housing prices go. They understand just how low interest rates are. And they have gotten the message that homeownership in the long-term is a really good thing as far as being able to provide stability for their families, build up equity and fashion a long-term plan for their lives.”
Room to grow
Jeff Donnellan, with RE/MAX Vision 212 in Chicago, says that he advises first-time buyers to skip the starter-home mentality and instead purchase a larger home within their budget that they can grow into as their needs change.
For instance, instead of buying a two-bedroom condo, first-time buyers might instead choose a single-family home or condo that boasts three bedrooms and two bathrooms. That way, if the buyers should have a baby, they’ll have enough room. They won’t have to immediately move again.
“I recommend that my first-time buyers find a home that will suit them for a good five years,” Donnellan says. “If their lives change, a versatile home is a stable part of their lives instead of a burden. And it usually takes five to seven years for most owners to pay down their mortgage enough, while their home appreciates enough, to be able to sell and make a profit. They won’t have to bring money to the closing.”
Many first-time buyers are following this advice, Donnellan reports. And Christofano agrees.
Christofano says that today’s home buyers, thanks to the myriad real estate stories populating the Internet, are a savvy bunch. They know how important it is to buy a home that they can settle into for five years or more.
And with housing prices still at affordable levels across Chicago and its suburbs, it’s easier for first-time buyers to get into those homes that are a bit larger.
“I’m seeing first-time buyers who are planning for the long term,” Christofano adds. “Many of them are bypassing the condo stage completely. In previous years, that would have been their first stepping stone of homeownership. Instead, they are choosing single-family homes with at least three bedrooms. Some are choosing homes with four or five bedrooms so that they can grow into them. They don’t want to be forced to move out too soon.”
James Ludes, an agent with RE/MAX Top Properties in Morris, Ill., says that today’s first-time buyers are more realistic than they were in the past. Ludes has worked in residential real estate for 10 years, so he witnessed the housing boom of the early to mid-2000s.
Back then, first-time buyers frequently stretched their budgets to get into the largest homes possible. Today, though, first-timers are more budget-conscious, looking for homes that will suit their needs and allow for growth but not put them in financial peril.
“At the peak of the market, your first-time buyers were going for the gusto,” states Ludes. “They were looking for everything they could get in a house. If they were pre-approved for a mortgage loan of $240,000, they’d want to see everything up to $250,000. If they could get 3,000 square feet and it was just two people, why not? Today, first-time buyers are being more realistic. They are looking for homes that will serve their needs for the amount of time they plan on staying there.”
As with all buyers, first-time buyers are interested in location. But RE/MAX agents say that today’s first-time buyers are frequently looking for homes located within walking distance of public transportation, restaurants and shops.
And if buyers can find a home that allows them to ditch their cars? That’s even better, adds Donnellan.
“Public transportation is a big key for a home’s value. If someone can live close to public transportation and if that person doesn’t need a car, that buyer can afford a lot more home. If you don’t have to worry about car payments, paying for gas, insurance and all the other costs associated with owning a car, you’ll have more money to get the right home.”
Christofano says that many of her first-time buyers might not want to live in Chicago, but do want to feel connected to the city. They can do this by living near public transportation.
And if they can buy outside of the city itself, these first-time buyers can afford more home.
Other first-time buyers are looking to work with sellers who are willing to pay for part or all of their closing costs. Again, this helps buyers who’ve never owned a home get into a potentially larger residence that will allow them space to grow their families, Christofano adds.
“Finding sellers who are willing to contribute to closing costs is one of the top things that are attractive to my first-time buyers today,” says Christofano.
A top market for first-timers
No matter what features first-time buyers are looking for today, this remains a strong market for them.
Housing prices in the Northern Illinois region are at affordable levels. Interest rates are at historic lows.
At the same time, rents continue to rise. This makes owning a home sometimes more affordable than renting an apartment.
Ludes says that he’s surprised there aren’t even more first-time buyers in the Chicago area.
“If you can buy a house now, why wouldn’t you?” Ludes asks. “Anyone who can get a mortgage loan today with an interest rate in the threes? Why wouldn’t that person want to buy a home? It always surprises me when people continue paying rent when they don’t have to. This is a great market if you’re looking for your first home. If you’re going to live in this region and work in this region, I really think you should buy a home today.”