First-Time Home Buyers The Best & Worst Cities

According to the National Association of Realtors®' 2019 Home Buyer and Seller Generational Trends study, found that older millennials who bought a multi-generational home, at 9 percent, were most likely to do so in order to take care of aging parents (33 percent), or to spend more time with those parents (30 percent).

The majority of buyers in all age groups are married couples, single buyers and unmarried couples continue to make a mark on the real estate market. Single females accounted for 25 percent of all younger boomers and silent generation buyers.

To determine the most favorable housing markets for first-time buyers, WalletHub took the pulse of real estate in 300 cities of varying sizes using 27 key metrics. The data set ranges from housing affordability to real-estate tax rate to property-crime rate.

• Akron, Ohio, has the most affordable housing (median house price divided by median annual household income), with a ratio of 1.83, which is 8.2 times cheaper than in Berkeley, California, the city with the least affordable housing, with a ratio of 15.04.
• Honolulu has the lowest real-estate tax rate, 0.29 percent, which is 12.9 times lower than in Waterbury, Connecticut, the city with the highest at 3.74 percent.
• Cleveland has the highest rent-to-price ratio, 16.00 percent, which is 6.1 times higher than in Sunnyvale, California, the city with the lowest at 2.61 percent.
• Shreveport, Louisiana, has the lowest average energy cost per household, $93.58, which is 4.2 times lower than in Honolulu, the city with the highest at $388.65

Expert Commentary

What should first-time home buyers consider when choosing a neighborhood?

“The old saying “location, location, location” applies to everyone, including first-time home buyers,” said Jai Xie, California State University, Fullerton. ““Location” often means neighborhoods that are safe, economically stable, conveniently located, and with good school districts. For first time home buyers, “location” also means a place that they can afford and is close to where they work.”

“While there are many variables in choosing a neighborhood, the single most important factor is your lifestyle factors,” said John Yeressuian, MBA, El Camino College. “In today's fast-paced world, we all have hectic lives, therefore you want to do as much as you can to reduce unnecessary drive times. If you have a family, you want to find a home that is within close proximity of your child's school or daycare. You want to find a location close to your work so you don't have to drive an hour each way to and from work. Having an additional 2 hours of time in your day because you live 10 minutes from home makes a huge difference in your lifestyle. It frees up more time to spend with your family, to go to the gym, to spend time on your hobbies, and so on. You want the location to be close to friends and family so you can visit them often and feel a sense of security. These are important factors for your social, physical, and mental health. Lifestyle factors are the number 1 factor that first time home buyers should consider.”

“Other factors include financial obligations, safety issues, parks and recreation areas nearby, shopping centers, outdoor green areas such as bike paths, lakes, and community centers. All of these issues can be ranked based on you and your family's needs. If you’re single, you probably don't need a huge house with a backyard close to close. It all depends on your individual needs and it comes down to my lifestyle factors.”

“The first important aspect to think about is the location itself. While families mostly benefit from being in proximity to good schools, unmarried young professionals may have a preference for being close to restaurants, cafés and other places where they can meet other people and enjoy leisure time,” said David Echeverry, PhD, University of Notre Dame. “Another important aspect of location includes the convenience of transportation (either distance to work or proximity to urban transportation).”

“The second aspect to consider in choosing a neighborhood is the community that is already there. While Americans relate less to their neighbors as time passes, having good neighbors is essential to being comfortable in a neighborhood. If you're thinking about a location, try to talk to local residents. Get their feel about the community. If they are happy to be there you're under way to make a good purchase.”

What do you recommend as the minimum down payment for a first-time home buyer?

“Most lenders are going to require between 3.5 to 5% down to get a loan,” said Marc Moffitt, MBA, University of North Texas. “The other major issue is closing costs, which can range between 1-3% of the purchase price. There are some situations where builders may offer incentives on new construction to help with down payment or closing costs.”

This, again, comes down to what discretionary spending will be if you put down a larger down payment,” said Laurence J. Kotlikoff, Boston University. “No rule of thumb will get this right. You need to set up alternative profiles, which consider different sizes of down payments and their different mortgage payments, and see the precise discretionary living standard hit of a larger downpayment. MaxiFi and any other decent spending tool incorporates cash/borrowing constraints. So it will show you that if you put a lot more money down, your living standard may need to be lower for many years. A decent tool will also help you evaluate paying points, which can, as I've found, often be a good deal. Here you'd set up two profiles and compare the discretionary spending (both annual and lifetime) from taking a mortgage with and without points.”

“Ideally, a home purchaser should put 20% down to buy a home, thus removing the need to pay for mortgage insurance (PMI) as a part of their monthly payment,” said Terry Fields, University of Alaska Anchorage. “PMI can range from an extra $75-$400 a month for common mortgages and has no affect on paying down your debt. It is a lost expense. The reality is that markets with home prices in the $300-$800k price range would require a down payment of $60-$160k -- a mark that many would struggle to achieve. A down payment in the 5-10% range is acceptable, especially if the person intends to occupy the home for seven years or more, enabling appreciation to grow and debt to be paid down before selling the home. Otherwise, homeowners that put little money down and don't allow equity to build will find themselves underwater if they need to sell -- a scenario that played itself out regularly in 2009 when falling home prices made the gap even harder to widen.”

To view the full report and your city’s rank, please visit:

https://wallethub.com/edu/best-and-worst-cities-for-first-time-home-buyers/5564/

Courtesy: WalletHub