In Buyers Market, Fixer-Uppers Are Tough to Sell
As a rule housing affordability requires one's ability to pay the mortgage. Or so we thought a decade ago.
While housing affordability appears to improve, in part due to increasing numbers of foreclosed properties for sale at discount prices, a growing first-time homebuyers' mentality of looking down on fixer-upper homes postpones their entry into the mortgage market. Buyers want their first house to be affordable and ready-made beautiful.
According to a Coldwell Banker Real Estate LLC survey of its banker-brokers, while nearly half of the respondents reported affordability is the No. 1 concern for first-time homebuyers, they find when these buyers choose a new home "their expectations may be too high relative to their current financial buying power." Up to 81% said today's first-time homebuyers consider move-in conditions very important, with only 7% looking to purchase homes they could buy at a lower price if they renovate themselves.
Buyers preferences have changed during the past decade, said Coldwell president and CEO, Jim Gillespie.
"In the past, first-time buyers were willing to purchase older, more basic houses in an effort to save money and break into homeownership. Today this group has greater home expectations because they have grown up more accustomed to their parents' lifestyles."
The survey found 71% of the respondents came across first-time buyers looking for a larger home than their counterparts 10 years ago, with 41% reporting that job proximity is their No. 1 priority, 35% said investment is their priority, and 46% said these buyers look at five to 10 homes before making a purchase.
Among reasons first-time buyers contact a Realtor, the survey found, are assistance in the process of identifying neighborhoods, negotiating prices and facilitating paperwork, at 73% compared to 32% 10 years ago.
There also appears to be a shift in financial concerns. While 29% of the brokers surveyed 10 years ago found these buyers were worried about their downpayment, today only 17% of them reported such concerns from their clients. Meanwhile 4% reported first-time buyers concerned with their credit score in 1998 compared to 14% today.
Mr. Gillespie believes it is important brokers, lenders and financial advisors remind these buyers that "by considering 'fixer-upper' for their first home purchase, they can build equity over time and move up and into their second-stage home that better reflects their expectations."
"First-time homebuyers now have higher standards placing an increased focus on the financial aspects of homeownership and at the same time want a large home they can live in right away," Mr. Gillespie said.
In the marketplace it translates into lower demand for real estate-owned properties, which are more at risk of deteriorating into unfavorable options by buyers who at least in theory could take advantage of the current situation and become homeowners.
To that effect, new financial incentives are expected to bring more first-time homebuyers to the marketplace.
For example, president-elect of the Illinois Association of Realtors, Pat Callan, recently commented on the one-time tax credit for first-time homebuyers as part of a new federal housing stimulus law designed to stimulate the housing market calling it "an extremely valuable tool for new homebuyers."
The Housing and Economic Recovery Act signed by President Bush on July 30 offers tax credits for homes purchased between April 8, 2008 and June 30, 2009. It applies to buyers with an annual income of up to $75,000 who have not owned a home in the last three years or never were homeowners. Buyers making between $75,000 and up to $95,000 are not eligible for full credit but phased down incentives.
"While we all understand we are in a challenging real estate market, it's important to recognize there are compelling reasons to buy, especially for first-time homebuyers in Illinois," he said. "We have low interest rates, attractively priced homes and plentiful housing stock." (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/