It’s too early for the spring home-buying market to start in earnest. What’s more, bad weather is slowing this year’s real estate recovery. Still, anecdotal reports indicate rising confidence among buyers.
“Buyers are past any freak-out about high mortgage rates. They’re more confident because they’re getting pay increases and because unemployment is super low,” says Stacy Berman, a real estate agent in the field since 2002.
An increasing number of young adults are seeking to escape their rental units. And changing market conditions are encouraging them to move forward. That’s especially so for people who spent the worst of the pandemic in a cramped apartment. The quest to buy remains especially urgent for those in the millennial generation.
“The millennials really want a house -- ideally with space for one or two home offices,” Berman says.
Millennials and their younger siblings from Generation Z are facing many financial headwinds. Rents, along with food prices and health care costs, have risen dramatically in recent years. But for those with young children, the real stinger is high child-care expenses.
Take the case of a nurse practitioner of 32 who’s married to an IT consultant. Together, their salaries exceed $100,000. But the cost of day care for their two toddlers now tops $3,000 per month -- more than their rent.
Even so, market conditions are now more favorable for buyers than they were during the pandemic home-buying frenzy of late 2020 and 2021, when bidding wars left many would-be buyers out in the cold.
One indication of buyer empowerment is that purchasers clearly have more leverage than they did during the worst of the bidding wars.
“Buyers are asking sellers for things that were unheard of during the past few years,” says Van Welborn, a Redfin real estate agent in Arizona.
Welborn tells how one of his clients negotiated a $10,000 credit for a new roof and several other repairs. The sellers also knocked $15,000 off their asking price.
“Concessions were common before the pandemic, and we may be returning to that norm. Sellers realize they’re not going to get $80,000 over the asking price like their neighbor did last year,” he says.
Though many young buyers now qualify for low-down-payment mortgages, the biggest stumbling block they face is often debt. This includes not only student loans but also car loans and credit card debt.
“Just like generations of homebuyers before you, you’ve got to tighten your belt and make extra loan payments until you whittle down your debt. Otherwise, your debt-to-income ratio will hinder your odds of qualifying for a mortgage,” says Sid Davis, author of “A Survival Guide to Buying a Home.”
Here are a few pointers for first-time buyers:
-- Try to reduce your debt load with extra income.
For anyone seeking to progress financially, cutting debt -- including credit-card balances -- is an absolute must.
“The interest rates charged on most credit cards are ridiculously high. All that interest can eat you alive,” says Jim Blankenship, a certified financial planner.
Unfortunately, many young adults make only enough money to meet necessary living expenses. Given this reality, Blankenship often recommends that would-be buyers consider supplementing their income.
“Think about taking a second job. Or try to get overtime at your regular job, assuming overtime is available,” he says.
-- Save cash by limiting wedding outlays.
Kristin Meador, a real estate broker who often works with young buyers, wrote a book designed to help clients save on their wedding costs. She says it’s very possible to cut costs for a range of wedding-related expenses, from invitations to rings to the reception and honeymoon.
“When you’re trying to save for a house, it makes no sense to spend $500 or more for a wedding dress,” Meador says.
She says there are many ways to hold an inexpensive yet tasteful wedding. These include having the reception at a local park or community center.
“Buying a home has long-term benefits that last far beyond your wedding day,” Meador says.
The expense of an average wedding is now hovering around $28,000 -- funds Meador believes would be better spent on a home, assuming the property is carefully selected.
-- Don’t rule out selling one car to build your savings.
A new or nearly new car is often the first major purchase for many young adults. Usually, the car is financed with a hefty loan. But mortgage lenders often frown at the sight of a prospective buyer driving up in a late model vehicle.
“Lenders know that a couple who’s financing one or more cars will likely find it tougher to qualify for a home loan,” Blankenship says.
Even if you drive an older vehicle and have no car loan, chances are you’re paying a substantial amount for car insurance and repairs -- not to mention gas.
Blankenship says it’s a wise idea for young couples bent on homeownership to ponder the idea of selling one vehicle. Consider public transit or carpooling as an alternative to commuting alone.
-- Consider shared housing on a temporary basis.
Moving in with a family member for a year or so could help you cut rental costs substantially. Perhaps an elderly uncle who owns a large house would let you live there rent free in exchange for help with grocery shopping and trips to the doctor.
Davis says he’s worked with a number of young buyers who’ve obtained substantial savings through a housing-for-services swap.
“You don’t have to live with your uncle or another elderly person forever. Just doing so temporarily could help you save sufficiently to pay down enough debt to qualify for a mortgage,” he says.
(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)