An Ohio couple in their late 20s -- a nurse and her lawyer husband -- were too intimidated by the overheated real estate market to make any bids during the pandemic. But despite soaring interest rates, they now see reasons for optimism.
“As first-time buyers we have a flexible timeline on when to move. Also, we’re witnessing more motivated sellers willing to accept an offer contingent on a home inspection, which is key for us,” says the lawyer.
Though a large number of would-be purchasers are now sitting on the sidelines because higher mortgage rates have cost them buying power, others with ample down payment money are pressing forward with their plans.
Indeed, novice buyers are now better positioned to make a purchase in many cases than are repeat buyers, says Manny Garcia, a population scientist for Zillow, the national real estate company.
“First-time buyers now appear to be making relative gains as high mortgage interest rates disproportionately encourage homeowners to stay put,” Garcia says.
In spite of affordability challenges, first-time buyers now represent 45% of all buyers, up from 37% last year.
“While rising mortgage rates are hurting affordability for all buyers, first-time buyers may be less deterred by higher rates because they’re comparing a monthly mortgage payment with what they’re paying in rent,” Garcia says.
George Ratiu, a senior economist for Realtor.com, the home listing firm, says wannabe homeowners are heartened by the relative increase in available properties due to a “rebalancing” of the market in buyers’ favor.
“Homebuyers have more for-sale homes to choose from compared to this time last year, as inventory has been improving steadily in recent weeks,” Ratiu says. This means buyers have more time to find good deals and think through purchasing options without missing out.
Here are a few pointers for first timers:
-- Seek out truly willing sellers.
The loss of a job is one common reason why homeowners must sell; divorce is another. Also, an increasing number of older baby boomers must sell to cover living costs in retirement.
Understandably, many potential home sellers with low-rate mortgages are reluctant to move if it means financing their next property with a higher-rate home loan. Yet in all markets there are always some “mandatory sellers” who have no alternative but to move, says Stephanie Vitacco, a real estate broker with Equity Union in Los Angeles.
As a potential first-time buyer, you might feel awkward seeking out owners who are under pressure to sell. But there’s nothing unethical about doing this, says Tom Early, a broker and past president of the National Association of Exclusive Buyer Agents (naeba.org).
How can you identify those who are highly motivated to sell? Early suggests you ask your real estate agent to draw up a list of properties in your favored area that have been on the market for an extended period. Also, he recommends you go to the neighborhood where you’d like to buy and talk informally to residents.
“Tell the local residents how much you appreciate their neighborhood and they’ll be more likely to open up with you as to which houses could soon hit the Multiple Listing Service,” Early says.
-- Invest time in researching the neighborhoods you’re targeting.
Early says many novice homebuyers let emotion dominate their thinking about where to live. But he strongly recommends that you also factor in some statistical measures before finalizing your neighborhood choice. This should increase your odds of choosing an area where prices are likely to rise in the future.
One way to help identify highly motivated sellers is by crunching numbers. Ask your real estate agent to determine the average “days on market” (from list to sale) for properties in the area you’ve chosen. Then look for homes in that price range that have been sitting unsold for a longer-than-average period.
Before crafting an offer on the home of your choice, Early suggests you also examine another set of numbers: the average list-to-sale price differential. If you note that most properties have recently fetched 90% of their list price, you might consider a first bid at a 10% discount off what’s being asked -- assuming your research shows this is warranted, he says.
-- Resist the urge to critique any home you’re considering.
Suppose you’re seriously considering a certain home. However, you’ve seen a few minor flaws in the floor plan, such as an inconveniently located laundry room and the absence of a first-floor bathroom.
In an attempt to strengthen your bargaining position, should you write a letter highlighting these drawbacks and also noting the owners’ poor taste in choosing to paint their kitchen sunshine yellow? Absolutely not, says Sid Davis, the broker-author of “A Survival Guide for Buying a Home.”
“It’s almost universally true that homeowners have pride in their properties and would be defensive about a strong critique,” he says.
Of course, you and your home inspector should be forthright in itemizing repairs that need to be done to bring the property up to standard, such as roof repairs or the replacement of a nonfunctional water heater. But the inspector should do so in a courteous manner that doesn’t insult the owners.
“Remember, it’s better to be gently assertive than obnoxious,” Davis says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)