Another Top-10 List — Best U.S. Cities for First-Time Homebuyers

Where are the best markets for first-time homebuyers? This is not easy to answer as there are a myriad of variables to consider– the first and foremost is having a job.

First time homebuyers, according to the National Association of Realtors® (NAR), are lagging in their share of home purchases compared to a decade ago, holding back both move-up buyers and home sales. While first-time homebuyers accounted for four-out-of-very 10 home sales a decade ago, in recent years this has hovered in the three-out-of-every 10 sales range. Nevertheless, NAR says Millennials will make up the largest homebuyer cohort in the U.S. in 2016.

Numerous factors challenge first-time buyers, with headwinds including:

  • Affordability – median home prices have risen from $89,500 in 1989 (the year I built my first home) to $255,800 in the latest 12 months, a gain of 185 percent
  • Credit Ratings
  • Most Restrictive Mortgage Underwriting Requirements I have Seen in My Life
  • College Loan Debt – now an average $25,550 for all with college debt, but $35,051 for 2015 graduates
  • Millennial Life Commitments at an Older Age for a Spouse or Significant Other – according to Sam Zell, this is the largest structural change in household formations in our lifetimes

The one factor today not impacting first-time or even repeat home buyers is the incredibly low interest rate. When we built our first home in College Station, Texas in 1989, we were thrilled to get a 30-year fixed rate loan at 9.75 percent. It was the first time in more than a decade that interest rates had dropped below 10 percent. At 9.75 percent, the monthly payment (principal and interest) for every $100,000 of borrowed money was $859.15. At the current 3.43 percent rate, that same payment per $100,000 borrowed is $445.15. That is 48.2 percent less than in 1989 –good news for homebuyers today.

Bad news, however, is the 185 percent gain in median price from 1989 to 2015 according to NAR. Not helping first-time homebuyers is median income. In today’s dollars (inflation adjusted), median household income in 1989 was $53,306 compared to $53,657 in 2014, so no change at all per the U.S. Bureau of the Census.

As usual, I invoke the TINSTAANREM clause — There Is No Such Thing As A National Real Estate Market. Each real estate market is different. Ditto the opportunities for first-time homebuyers.

So where are the best markets for first-time homebuyers in the U.S. today? To answer this, SmartAsset examined all U.S. cities with a population of 300,000 or more. Metrics used in their second annual survey included:

  • Total Number of HUD Approved Lenders – key to lending availability
  • Loan Funding Ratio — number of conventional non-jumbo loans originated in 2014 as a percentage of non-jumbo loan applications (average in the U.S. 69 percent) per the MBA
  • Value Per Square Foot – average 2015 price per Zillow
  • Affordability Ratio – ratio of median household income over five years vs ownership costs (closing costs, mortgage payments, insurance and taxes) via US Census Bureau, Bankrate, NAIC
  • Homeownership Stability – homeowners with negative equity and the number of years homeowners remain in their homes — SmartAsset’s Healthiest Housing Markets Study
  • Market Volatility – Standard deviation of quarterly year-over-year housing appreciation from 2010 to Q3 2015 via Federal Housing Finance Agency
  • Number of Negative Home Price Declines Quarterly Year-Over-Year Since 2010 via Federal Housing Finance Agency

And the best first-time homebuyer markets today?

8-24-16 table

To read the entire report including the top-25 best first-time homebuyer cities click

While many markets may be less affordable than a few years ago, rents have likewise exploded. For many renters, despite rising home prices, becoming a homeowner is an economically superior choice.

Call your local Realtor to see what you can afford. You might be truly surprised.


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