The Features that Make an Area Ideal for First-Time Home Buyers

A recent report from Zillow identifies the best markets for first-time buyers right now—and the features that make an area better-suited to first-time buyers.

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If you’re a first-time homebuyer looking to purchase a property this year, it might seem like a daunting time to enter the market. We’re still experiencing effects of the 2020 and 2021 markets, even as inventory rebounds and the number of shoppers decreases, in sharp contrast to the low-supply, enormous demand market we saw a few years ago.

The bidding wars might be over, but there are still parts of the country where purchasing a home might be a tough prospect for a first-time buyer. On the flip side, there are definitely housing markets in certain metro areas where it makes perfect sense to buy right now. 

“When you’re on the ground, it might feel like homeownership seems like a lofty goal, but we think about things in terms of relative affordability,” says Amanda Pendleton, home trends expert at Zillow. “So when compared to other metros around the country, a lot of these Midwestern metros have median prices that are below the national average, for example.”

Luckily, the folks at Zillow have put together a report detailing the top 10 housing metros for first-time homebuyers throughout the country. And while the report isn’t intended to send buyers packing to these locations, it does offer insight into what makes a good market, green-lighting buyers in that area to take advantage now, especially knowing that owning a home is a major step that can help with your overall financial picture.

“Homeownership is the fastest and most reliable way to stabilize your housing expense and build wealth at the same time,” says Doug Shepherd, broker at Better Homes and Gardens Real Estate Champions.

The Report

The Zillow report factors in a handful of metrics for an index of metro areas in the country. Those metrics are: mortgage affordability, rent affordability, the inventory-to-buyer ratio in each market, how long it takes to save up for a down payment, and the percentage of listings that have had a price cut.  

Pendleton says Zillow used its own data, combined with U.S. Census Bureau data, to gather six data points for a number of major metro areas in the country. Those data points were: typical rent in the area, typical mortgage payments based on home value on a 30-year fixed mortgage, the number of for sale listings in that market, the percentage of listings with a price cut, the number of home shoppers in each market (based on previous Zillow data), and the estimated income for that area based on Census data and data from the U.S. Bureau of Labor Statistics.

Mortgage vs. Rent Affordability

Once these data points were gathered for each area, Zillow experts used the index to generate a score for each area based on the data set. Pendleton says overall mortgage affordability in the area was weighed more heavily than the other factors. Mortgage affordability was calculated by looking at how much the average person makes vs. how much they would have to spend on a mortgage. The rule of thumb for your mortgage is that it should not be more expensive than 30 percent of your pay, Pendleton says. 

“The rule of thumb is 30 percent, so you want to make sure your housing payment is 30 percent of your pre-tax income, or less than that to be comfortable to cover all of the other expenses of life,” she says. “That said, we know people make it work when they’re paying more than 30 percent.”

Each of the top 10 metro areas on this list had a mortgage affordability data point of 26 to 32 percent of the estimated income. 

The mortgage affordability number is right after the rent affordability number for each city, making it easy to see how much you’re paying in rent vs. how much a mortgage might cost in each area. For some of the metro areas on the list, a mortgage cost less than a monthly rent payment, while for others it was comparable or higher by a few percentage points. 

If you don’t see a nearby metro area on the list, you can always use Zillow’s buy vs. rent calculator to determine how your current rent payment might compare to a future mortgage payment.

“High home prices may tempt you to think renting is the more affordable option, but almost everywhere you look, rent is going up, too,” says Brandon Snow, executive director at Ally Home. “Depending on your location, renting may even be more expensive than buying.”

If this is the only factor on the list giving you pause, Shepherd says not to be afraid to make a concession.

“Yes, a percentage of your income should be factored, however many advisors say you should limit your payment to one fourth or one third of your monthly income,” Shepherd says. “But because your income changes and property values rise and build wealth in the long run, sacrificing some lifestyle for future security may be considered.”

Number of Shoppers

The number of shoppers in each area was turned into a ratio for shoppers vs. inventory to tell buyers how competitive each market was. The first city on the list, Wichita, Kansas, won that category by a landslide with a 22 to 1 ratio. 

“That’s the overall number of options for each buyer at the time,” Pendleton says. “That’s a good signal you’re in a buyers market, if there’s 22 listings for every one buyer. You have more bargaining power as a buyer there.” 

It’s a huge improvement from two years ago.

“During the pandemic it was flipped: We had too few listings and way too many buyers,” Pendleton says. 

At that point, the ratio was more like six listings to one buyer, she says. An ideal market would, of course, have a ratio of one to one, but that’s not likely. 

“Bottom line—even if you knew what this constantly shifting ratio was in your target area, it might not reflect your actual experience as a buyer, since each home will attract different levels of demand,” Pendleton says. 

Price Cuts

At the height of the pandemic, the share of homes in many markets with price drops was in the single digits, Pendleton says, indicating that sellers had the upper hand when it came to soliciting competitive offers. 

Pendleton says on some level, reducing a listing’s price can be strategic, to garner interest, while some sellers are simply listing a home for much more than it’s worth, whether they’re optimistic or unrealistic.

“In general, it indicates that the buyer demand is not there at that price,” Pendleton says of a price drop.

Including this data point in the study also shows markets where it’s possible to strike a deal.

Time to Save for a Down Payment

The amount of time required to save for a down payment was factored based on average income. In this scenario, the down payment was set at 10 percent, and the savings rate was 2.4 percent.

But Pendleton says this is a very personal factor, one that a mortgage lender can help you determine. It could be you qualify for a down payment assistance program or a loan that requires a much smaller down payment than a traditional loan—think an FHA or VA loan vs. a conventional loan.  

“If you qualify, you can buy a home with as little as 3.5% down with an FHA loan or as little as 3% down through a HomeReady mortgage, available through many lenders including Ally Home,” Snow says. “However, if you put down less than 20%, you will need to factor in additional costs such as private mortgage insurance (PMI), which can cost between 0.5% and 1% of the entire mortgage loan amount annually.”

How to Use This Report

Don’t get up and move just yet. Pendleton says this list is simply an interesting look at market factors throughout the country and how they might affect first-time buyers. 

If you’re looking to buy, the report might give you a good idea of a city in your current area that is most affordable for you. It’s also a good place to start if you’re a remote worker looking to relocate to an affordable part of the country where market conditions are friendly to first-time buyers. 

“These cities offer a good quality of life, and you might want to consider some of these metros that offer relative affordability,” she says.

It’s also a good way to determine whether you’re better off buying vs. renting given the cost of rent in your area. 

“Some of it is a lifestyle choice, but if you’re thinking purely about financials, you should think about buying, especially if you’re in a place where rent is expensive and consistently rising whereas a home payment would be the same for 30 years vs with rent inflation,” Pendleton says.

And as Shepherd points out, it could be a good time to buy if you know you’re going to be in an area for a bit.

“The best advice for first-time buyers is that, if you are going to remain in an area for more than two or three years, you should own it instead of rent,” Shepherd says. 

For quick reference, the top 10 metro areas on the study ranked as follows: 

  1. Wichita, Kansas
  2. Toledo, Ohio
  3. Syracuse, New York
  4. Akron, Ohio
  5. Cleveland, Ohio
  6. Tulsa, Oklahoma
  7. Detroit, Michigan
  8. Pittsburgh, Pennsylvania
  9. St. Louis, Missouri
  10. Little Rock, Arkansas

What This Means for Buyers

First off, don’t let one study from a moment in time delay or rush your home buying process. This study is merely a tool for prospective buyers, Pendleton says. 

That said, deciding when to purchase your starter home and where will largely be determined by your income, your savings, and your personal needs. Get ready by taking a look at your own financial picture. Snow says it’s important to take a look at your credit score, your debts, and any savings you can put toward closing costs and down payments. 

“Buying a house is a big step—one you want to be financially prepared for. Determining whether or not you’re ready will help you stay ahead of any money-related challenges down the road,” he says. 

Once you’ve done that, see about getting in touch with professionals who can give you some options.

“Starting with a sense of adventure, a first-time buyer should have mortgage pre-approval, sense of budget, and a solid understanding of resources available to make it happen,” says Scott Harris of Brown Harris Stevens. “A good agent will help you with all of this.”

In other words, don’t delay your home purchase just because the market isn’t totally ideal at the moment.

“Buyers should get on the field,” Harris says. “It doesn't mean they're going to win. But they definitely won’t win if they don’t play.” 

Harris says that, once you have an idea of your budget, you should select a real estate agent you connect with who can help you find the best value in your current location and market conditions. 

“Assuming you’ve saved your money, are okay with committing for 5+ years, and are ready to roll up your sleeves, right now is a time when mortgage rates and prices are dropping, and spring inventory is coming to the market,” he says. “So, right now seems about as good a time as we’ve seen in at least three to four years.”

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