First-time buyers must keep expectations realistic
There are two sides to housing affordability that brokers and lawmakers have been working to address: affordability of house prices and sustainable affordability.
The first is very obvious and covers the cost of buying a home, upfront mortgage costs, and other items that must be worked out before a loan is closed.
The second involves what happens after the loan is closed. The cost of insurance, taxes, house upkeep, and day-to-day expenses makes keeping a home difficult.
Part of addressing the second piece of affordability is ensuring that a homebuyer chooses a home that aligns with their long-term budget. One broker said it’s important to make sure homebuyers, especially first-time buyers, have the right goals in mind.
Matt Gouge (pictured top), mortgage broker and mortgage consultant at Answer Home Loans, said part of his job is to ensure expectations align with reality, especially for first-time buyers.
“I think part of it, too, is realistic expectations,” Gouge told Mortgage Professional America. “As a first-time homebuyer, you shouldn't expect four bedrooms, three baths, 2,800 square feet. A starter home is a starter home. There have been a lot of people who have had to just come to terms with the realization that, ‘I'm going to buy less house than maybe I want or I dreamed of.’ But this is the first house. This is a stepping stone.”
Growing into a home
Gouge said brokers have to work with first-time buyers to make sure they’re looking in the right areas for their first home, which can set them up for their dream home later.
“This isn't forever, because your first house at age 28 or 32 is hardly ever the one that's your last house,” he said. “So a two-bedroom, one-bath, 980-square-foot home is fine for you and your cat. Once you get married, have some kids, grow a family, your house in your mid-40s is a white picket fence and four bedrooms. I think a lot of things contribute to this crazy stat about the average first-time buyer being 40 years old.”
He said it is an encouraging sign that home prices have moderated a bit and even gone down in some markets. That will hopefully encourage first-time buyers into the market.
“Housing's not going to be cheap anytime soon, but it's less painful than maybe the last couple of years,” Gouge said. “Buyers, especially first-time homebuyers, have to be a little bit more flexible. They have to start thinking about housing, especially their first house, as a stepping stone, not a forever home.”
Coming to terms
Positive signs are emerging in the market that could help improve housing affordability. Rates have dropped into the low 6s, home prices continue to stabilize, and inflation seems to be waning a bit.
“I think it's a mix of two things,” Gouge said. “Part of home buying is psychological, and part of it is truly numbers and analytics. As inflation numbers come down, wages go up, interest rates come down, all those things that collectively will slowly but surely help affordability. So on the numbers side, we're seeing some relief.”
With tangible improvements in affordability, buyer sentiment towards market conditions improves. Gouge has seen some buyers who had been holding out for better rates or lower prices start to return to the market.
“I also think we're seeing the unwinding of buyer fatigue, or buyer strike,” he said. “People are saying, ‘I'm going to stop fighting the fact that I don't like what I see when it comes to home prices or my mortgage payment when I run these preapproval scenarios, and I'm just going to do it.’”
Gouge thinks there is a growing trend in which potential buyers have finally decided that market conditions are good enough for them to move forward, even if they’re not perfect.
“For whatever reason, there were so many people who were digging their heels in and just kind of stubbornly staying out of the market because it wasn't as affordable as it once was, or it wasn't as good as they once wanted,” he said. “But then they realized that doesn't do them any good. I feel like a number of them are starting to come around and come back into the market.
“Buyers are coming to terms with the current state of affordability and housing. They’re just not fighting it anymore.”
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This article is part of our Monthly Spotlight series, which in January focuses on Affordability. Full coverage can be found here.
