Rich Harty, a real estate broker in the Chicago area, has been selling homes since 2008. But he’s never witnessed such high levels of worry among potential first-time purchasers.
“People are extremely, extremely cautious about what they buy. That’s understandable, because buying a home isn’t like buying a pair of jeans you can return. It’s a vastly larger commitment,” says Harty, a past president of the National Association of Exclusive Buyer Agents (naeba.org).
Of course, there are solid reasons for the unusual level of wariness on the part of potential buyers. One is that since the pandemic first started, prices have risen dramatically. And in many popular neighborhoods, prices continue to escalate.
Orphe Divounguy, a senior economist for Zillow, the national realty company, says the estimated total value of all homes in America has surged since February 2020.
“The U.S. housing market has rebounded impressively in 2023 after a short-lived downturn last year. The total value of the U.S. housing market is 49% higher than before the start of the pandemic,” Divounguy says.
It’s not only high prices that pose a significant affordability challenge for prospective purchasers. Mortgage rates, once expected to ease by this point in the economic cycle, are still elevated. And there’s no certainty that rates will moderate by the end of the year, as once hoped.
“Heading further into the fall season, home listing prices continue to be propped up by a low existing home inventory, as higher mortgage rates contribute to an ongoing existing home inventory crunch,” says Sabrina Speianu, economic data manager for Realtor.com, the home listing service.
Besides the pricing barriers facing would-be homeowners, many are holding back due to the dearth of available listings in the areas they prefer.
Harty is currently working with four sets of renters, all in their 30s, who for many months have been unsuccessful in finding a suitable property in central or suburban Chicago. They include two couples with young children as well as two single adults trying to relocate to larger properties.
“Those who already own homes don’t want to move because they’re sitting on 3% mortgages and know that buying elsewhere would mean a much steeper home loan rate,” he says.
Due to their extremely cautious approach to home selection, many first-time buyers are hoping they can obtain a property they could hold indefinitely.
“They’re skipping over the ‘starter home’ and trying to go straight to the ‘forever home’ because of the high costs of moving,” Harty says.
Affordability barriers are not the only reason many purchasers are resistant to making an immediate purchase. They’re also troubled by worries that limit them psychologically. Here are a few such common fears and how buyers can address them:
-- Fear of humiliation about your credit history.
“It’s truly a smart idea to go to a lender’s office for mortgage preapproval before heading out on a house hunt. You might be very pleased to realize the lender would qualify you for a larger loan than you anticipated,” says Dorcas Helfant, a former president of the National Association of Realtors (nar.realtor).
Some would-be mortgage applicants, especially those with modest incomes, worry they’ll feel shame when lenders look at their pay stubs or federal tax returns. Applicants who are self-employed fret that their financial documents won’t convey their true capacity to afford a home.
But most mortgage lenders rely on commissions and don’t get paid unless their clients get approved. This gives them a strong incentive to take the time and effort required to help rectify their clients’ problems.
-- Fear of choosing a place against the advice of your family members.
Many would-be first-time buyers are in their 20s or 30s. On financial matters, they still look to their elders for direction and, not infrequently, for cash subsidies as well.
“I can’t tell you how many times buyers crave the support of wise family members when it comes to buying their first home. It’s a new experience that can feel exciting yet incredibly scary,” says Merrill Ottwein, an Illinois-based real estate broker who specializes in helping buyers relocate.
There’s nothing inherently wrong with seeking help from relatives. But Ottwein says you should request their involvement early on, not when you’re about to sign the papers to buy a place.
“Your family could be caught off-guard by a late-stage request for guidance. They might be needlessly negative and counsel you against a particular purchase in an attempt to shield you from an error,” Ottwein says.
If you’re afraid to go forward without your relatives’ guidance but don’t want them to mess up your plans, he suggests you bring them along on all your house-hunting trips. That way, they can compare various alternatives and are likely to give you more objective advice.
-- Fear of coming up short on funds to close a home deal.
Granted, it can be costly to make a housing change at any stage of life. But many first-time buyers overestimate their need for cash to go through the transition. They fail to take into account the reality that there are a multitude of low-to-no-down payment mortgage programs available to them.
Ottwein says first-time buyers are well advised to explore these options as soon as they decide to make a purchase, rather than waiting until their savings accounts are brimming with funds.
“Before you head into a huge savings campaign, call an experienced mortgage lender. It’s possible that you may not need as large a down payment as you imagine,” he says.
(To contact Ellen James Martin, email her at email@example.com.)