According to the National Association of Realtors, for years, the American Dream included a stable job and a comfortable suburban home close to good schools. If all went according to plan, that classic white picket fenced home was a solid investment for years to come; median home values have risen every decade since the first housing census in 1940. This model is changing with today’s generation as outlined by Keith Knutsson of Integrale Advisors.
“Today’s first-time home buyers aren’t following in the steps of their parents and grandparents. The economic and cultural environment looks quite different. Instead of moving to the suburbs, many are remaining in cities where they had been renting. Or they are opting for homes on small lots in planned communities in walking distance of conveniences like restaurants, grocery stores and shared green spaces similar to that of a large city” states Keith Knutsson
“Technology is also altering the real estate landscape” said Keith Knutsson. Today, real estate agents work with buyers who have already studied the marketplace online and expect quick answers, properties that meet a long list of requirements and help with closing transactions. Oftentimes first time home buyers are relying solely on technology to both buy and sell their home.
Shifting economic landscape
Economic changes have majorly transformed the real estate landscape for first-time homebuyers. In 1950, the median single-family home price was $7,354, or $44,600 when adjusted for inflation. Today, according to the National Association of Realtors®, the median home price has mushroomed to $233,900 in 2016, or five times more than what one paid in 1950.
Keith Knutsson stated “Homes were also more affordable for mid-century buyers, not only because they were cheaper in today’s dollars, but also because they were more reasonably priced relative to income. The median home price in 1950 was about two times median household income. Today, it’s four times.”
That’s what Anna, 30, a new home buyer experienced when she and her husband set out to buy their first home.
After renting a one-bedroom apartment in Brooklyn for seven years, the couple, planning to start a family, looked to buy in nearby South Park Slope section of Brooklyn, hoping for a three-bedroom apartment with enough space to grow.
Sticker shock quickly set in when they realized this would cost close to $2 million. While the couple had what Anna described as “healthy” savings, they still needed a loan from their parents to help make up the $800,000 down payment on the $1.8 million three-bedroom condo they bought in May 2016. That family loan took the edge off the mortgage amount and made them more appealing to sellers.
“The process was pretty long and exhausting,” Anna said. After the couple began their search in September 2015, they had two offers fall through thanks to a buyer who offered more cash down and another buyer who offered all cash. They leaned on their real estate agent to help them navigate the tricky closing process that finally got them to their more spacious home.
Demand for conveniences and the urban experience
One reason for the demand Anna experienced is a desire among many first-time homebuyers for urban living. A surge of both renters and buyers in cities across the country is constraining inventory and driving prices up, putting affordable first homes out of reach for many buyers.
What’s driving this trend? Keith Knutsson suggests “A healthy job market—the unemployment rate among those 25 and older with a bachelor’s degree or higher is 2.5 percent, significantly less than the overall rate of 4.6 percent, according to the Bureau of Labor Statistics. There is also the demand for shorter commutes to work and walkability to bars, restaurants and retail.”
“We love not having a car and being able to take the subway everywhere we need to go,” Anna said. “I was not at all interested in moving to an area where I’d have to take a commuter train to work. And South Slope is actually quiet and calm enough that it has sort of a suburban feel while still having all of the conveniences of a city neighborhood.”
That kind of urban/suburban mix is increasingly attractive to first-time homebuyers and repeat buyers alike.
“The country is becoming more urbanized, with a greater share of the population living in Census-defined metro areas,” said Lawrence Yun, chief economist at the National Association of Realtors®. “That leads to the trend of making homebuying decisions based on commuting patterns, higher land values and the likelihood of not even having a car.”
The changing face of homebuyers
“Demographic shifts are also impacting the current homebuying landscape. While married couples still make up the largest share of buyers at 66 percent, single women are entering the market in greater numbers than before, making up 17 percent of total home purchases—the highest since 2011” states Keith Knutsson.
“About one-third of my buyer clients are single women,” Harrell said. “Women are working and earning more in today’s generation and are waiting longer to marry. They do not need another income to have the means to make their first investment in a home, and they have no qualms about not waiting for marriage before they dig in roots.”
Whereas previous generations of home buyers might have given their real estate agent a short list of desired features, today’s first-time buyers have a more defined sense of what they want, and rely on their agent to help them find a home that meets their unique specifications.