One of the most important elements of a buoyant real estate market is the participation of first-time buyers.
They are the bedrock on which home values continue to grow. If there is less demand at the entry-level end of the market, everyone else suffers.
The good news is that property portal Realtor.com is reporting that 23% of Millennials plan to buy their first home in the next six months.
That’s a big improvement from the 15% registered in its survey last September.
Across the population, 68% of Americans have no interest in upsizing or downsizing in the current market.
Some 69% of owners who say they are exploring the possibility of selling told the survey a drop in interest rates would be a decisive factor in their decision to list.
Baby Boomers are the only demographic who appear unconcerned by interest rates. Some 41% claimed their decision to transact would not be influenced by loan costs.
Realtor.com found 63% of younger buyers who are considering entering the market were still holding off until consumer loan rates drop below 5%.
That’s likely to be a little while off.
A recent survey by Freddie Mac found the average retail mortgage charge was 6.81% at mid-June.
The Federal Reserve is under intense pressure from Washington and the National Association of Realtors to bring down its current 4.25%-4.5% cash rate guidance, which dictates the cost of mortgages.
The Fed has been resisting this pressure, saying it wants to determine the inflationary impact of recent tariff impositions.
To illustrate how mortgage costs are dominating Millennial thinking, only 2% said they’d even consider a property deal if interest rates went through the 7% threshold.
Here are some tips for first-time buyers who intend to enter the market:
Create a realistic budget: A rule of thumb is that your monthly housing costs should not exceed 25-28% of your monthly take-home pay. Try to have funds in reserve for unexpected home repairs.
Your credit score: Lenders use your credit score to determine your creditworthiness and the interest rate they’ll offer. A higher score typically means a lower interest rate. If you have debts, work hard to pay them off as quickly as possible.
Get pre-approved – A pre-approved mortgage means a lender has reviewed your financial information and has determined how much they’re willing to lend you. This gives you a clear understanding of your budget and shows sellers you’re a serious, qualified buyer.
Downpayment goal – If you can achieve a 20% deposit, you will avoid Private Mortgage Insurance, which the lender charges in case you default on your loan. Of course, not everyone can achieve this size of deposit. Most lenders will accept a 5% deposit. Also, budget 5% of the property price for closing costs, such as taxes, legal fees and commissions.