First-time homebuyers are feeling anxious and unprepared in this highly competitive housing market, according to a new survey from TD Bank, America’s Most Convenient Bank. TD’s First-Time Homebuyer Pulse found that despite a desire to make a purchase, nearly three in 10 (29%) of Americans hoping to buy feel this is an uncertain time to do so. Furthermore, buyers haven’t taken steps to prepare for the competitive housing market or reconciled their wish lists, two things that are key to securing a home in this environment.
TD Bank surveyed more than 1,000 Americans planning to buy their first home in 2022 to uncover homebuyers’ views on the purchase process, their preparedness to enter the market, and what they’re looking for in a home.
First-time homebuyer jitters are strong
Low inventory, steep competition, and high prices in many areas across the U.S. are fueling fears for buyers and creating an even more daunting undertaking for those entering the market for the first time. TD’s survey found that only 36% of those looking to purchase a home this year thought that now was a good time to buy, a sharp decline from 59% in 2021 and a dramatic drop from two years ago in 2020 when almost twice as many prospective buyers (68%) thought it was a good time to purchase a home.
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First-time buyers’ perception of the economy and finances are chief sources of worry. Seven out of 10 are concerned about the economy, and 67% are concerned about their ability to afford a home. With the median U.S. home price reaching $350,300 in January, a 15.4% increase from the same time last year according to the National Association of Realtors, it’s not surprising that the majority (65%) of those surveyed say home prices are too high. Despite dampened enthusiasm, 35% still want to purchase a home as quickly as possible while 30% are willing to wait it out a bit. But is timing really the answer?
“Whether you enter now or in a few months, you’re going to be faced with a competitive market,” said Steve Kaminski, Head of U.S. Residential Lending at TD Bank. “If first-time homebuyers want to ease anxieties and succeed, it’s imperative that they prepare and meet with a lender early in the process. Lenders can help lay the financial foundation and educate buyers on the paperwork they’ll need for the mortgage process, giving them confidence as well as a leg up on the competition.”
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Financial fears don’t prompt preparedness
Amid the glaring hurdles of the housing market, more than half (54%) of respondents view the homebuying process as painful. But that’s not prompting first-time buyers to find ways to successfully navigate the mortgage process, which would go far to strengthen their purchase power and ease concerns. TD Bank found that less than half of first-time homebuyers (48%) have started saving for a down payment, compared to 59% last year. More than half (54%) have not yet established a budget for their new home and those who have may have failed to account for the total costs of home ownership, from maintenance and renovations to Homeowners Association fees, utilities and insurance.
Furthermore, only 22% have spoken with a lender, despite 33% reporting they have already started touring homes (in person or virtually) and 53% regularly browsing listings online.
“It’s undoubtedly a seller’s market, where they’re often entertaining multiple offers, so the most prepared buyers – those who have their paperwork in order and can enter a contract with ease – are most attractive to sellers,” said Kaminski. “You have to start conversations with your mortgage lender as soon as possible. They can help first-time buyers find out how much they can afford, what mortgage options exist and level-set before they begin their search.”
Increased education from lenders about first-time homebuyer programs could also ease the burden for the 46% of respondents (and 51% of younger millennials ages 26-33) that said saving for a down payment was a roadblock to purchasing their first home. In addition, 81% of low- to moderate-income borrowers cite making a down payment among the top three barriers they’re concerned with facing in the homebuying process.
“Buying a home is a huge financial commitment but it doesn’t mean it’s off the table if you feel you have limited resources,” said Kaminski. “Many lenders, including TD Bank, can introduce buyers to affordable mortgage programs and products designed to give first-time buyers more flexibility in the purchase process. So, no one should count themselves out. Buyers should speak with a professional and learn their options first.”
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Balancing wish lists with budget realities
Steep competition warrants a revised wish list in this market. But, surprisingly, just a little more than half (52%) are looking for a starter home or fixer-upper rather than a forever home. That differs from last year, when 71% wanted either a starter home, a fixer upper they’d eventually grow out of, or a fixer upper they would turn into their forever home. This is a surprising finding, as flexibility in home condition can be an integral factor in securing a property in today’s housing environment. More than half (56%) of those looking for a starter home or fixer upper say the current market impacted their decision, with 39% trying to find something more affordable and 22% unable to find the forever home they wanted due to low inventory.
Perhaps unsurprisingly, spending more time at home during the pandemic has reshaped buyers’ wish lists. Only 31% listed “close to my office/work” as a top three priority for their new home, down from 37% last year, representative of more permanent hybrid and remote work. The pandemic has also driven buyers’ desire for more square footage, allowing more room for stay-at-home conveniences. More living space is a motivator for most (69%) homebuyers, in line with the same percentage from 2021. In particular, 45% of respondents are factoring in space for a home office into their search, and 37% are considering space for a home gym. And don’t forget about those pandemic puppies – 46% specifically want a home with space for pets, which jumps to 54% among younger millennials (ages 26-33).
“It’s important to identify your must-haves and your nice-to-haves in a home,” said Kaminski. “In this market, you’re likely going to have to make trade-offs, like purchasing a starter home or opting for less square footage. Speaking with a lender first helps you understand how much home you can afford so you can balance your wish list with the realities of your budget and tailor your home search accordingly.”
Like any major financial decision, there’s power in properly preparing to buy a home. Here are a few quick tips to help first-time homebuyers successfully enter the market and navigate the mortgage process.
- Learn about home ownership: Understanding what you need to know better positions you to work with realtors and lenders during the process.
- Determine what you can afford: Establish a budget so you know how much you can afford and what you’re comfortable spending before you begin your search.
- Find a lender: A lender can introduce you to affordable loan options and first-time homebuyer programs that can help lower interest rates and provide down payment assistance. They can also provide a pre-qualification letter, which demonstrates to realtors that you’re serious about buying a home.
- Get your paperwork in order: Pay stubs and other documents indicating income will be needed during the application process. Accessing them early allows you to be nimbler when applying for a mortgage, speeding up the process.
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