A lack of proper housing education is another one of the big issues, according to Vernon. “Despite a wealth of resources, many homebuyers remain under-informed when making one of the biggest purchases of their lives. Lack of knowledge about the home-buying process is one of the biggest inhibitors to a smooth and sustainable home purchase.”
Mortgage interest rates, while still low, are currently rising, standing at about 4.2 percent nationally, nearly a full point above the 2013 lows of 3.3 percent. This means that as interest rates rise, homes may become unaffordable for buyers with lower incomes, especially first-time buyers, as more income is devoted to mortgage payments.
“Generally, when we look at historical trends, first-time homebuyers, on a national basis, historically make up about 40 percent of all the business contracted in a year, and throughout 2013, the first-time homebuyer segment was in the high 20s, which says a couple of things,” says Ron Peltier, Chaiman & CEO, HomeServices of America
“All of the insight and surveys would suggest that people would clearly still prefer to own a home or to own property versus renting, but I think we’re seeing a lack of inventory on entry-level housing, and clearly, there’s little to no new construction in that segment of the market,” Peltier continues. “This smaller universe of inventory and along with very strict underwriting guidelines, and the fact that first-time homebuyers are not capable of coming up with the higher down payment required in this kind of mortgage world, that’s a little troubling because people have to find an entry point into the homeownership cycle and, at this point in time, that segment of the market is the most disadvantaged given the current circumstances.”
So how can first-timers work to succeed in homeownership when the market seems to be working against them?
“Despite challenges—like student loan debt—consumers need to understand all of the options available to them,” says Vernon. “The good news is that first-time buyers have options.”
“Our best advice for first-time home buyers is to first talk with a mortgage specialist or real estate professional who can help them determine what options are appropriate for their situation and to know the difference between what they can afford and what they can comfortably afford,” suggests Vernon. “They should not try to time the market, the rates, home prices and the overall condition of the housing market. We encourage them to use the many tools and online resources available to stay educated about the home-buying process.”
For any real estate professionals currently working with first-time buyer clients, on March 20, 2014, Bank of America is hosting Preparing for Homeownership, a financial education webinar that will walk consumers through the mortgage basics, home buying needs and steps in finding the right home, as well as resources for first-time and repeat buyers to help them achieve sustainable homeownership.