LendingTree is out with a year-long study looking at home-buying opportunities for first-time buyers in specific urban markets.
That's relevant as American homebuyers (and homeowners) gear up for the notoriously active spring U.S. residential real estate market. Increasingly, a big issue that can be a real deal maker and deal breaker is the city or region the home buyers covet.
Lending Tree pushes that narrative forward, with a close look at the nation's "best and worst" cities for newbie homebuyers, and how those rankings directly impact the "first homebuyer" demographic.
The study, which factors in average down payments, number of buyers using an FHA mortgage, average down payments, and credit health of buyers, among other issues, lists the best and worst cities for new homebuyers as follows:
Most Accessible Cities for First-Time Homebuyers:
- Little Rock, Ark.
- Birmingham, Ala.
- Grand Rapids, Mich.
- Youngstown, Ohio
- Winston, N.C.
- Dayton, Ohio
- Scranton, Pa.
Most Challenging Cities of First-Time Homebuyers:
- New York City
- San Francisco
- Austin, Texas
- Las Vegas
- Los Angeles
- Oxnard, Calif.
- Sacramento, Calif.
According to the Lending Tree report, Little Rock didn't top out on any of the criteria analysts listed, but did finish in the top 20 in all categories, giving it the best aggregate ranking. "Its best attribute is a low average down payment of just 12% or $24,896. It also scores well in the share of non-prime homebuyers at an even 50%," Lending Tree noted.
The best city for down payments was Birmingham, while Grand Rapids is the "best place" to be an FHA borrower, Lending Tree reported.
On the other side of the coin are cities where home prices and down payments are high, the FHA share is low, and home prices exceed affordability thresholds, Lending Tree notes.
"Denver is not the most challenging city in any single measure, but weak showings across the board could create obstacles for first-time buyers," the report states. "Down payments are high at $66,806, and even the FHA down payment is a considerable $22,841."
Real estate professionals warn against taking too much stock in geography as a home-buying priority.
"As a first-time homebuyer, it's critical to maintain a long-term perspective," says Shayan Jalali, a Boston, Mass.-based realtor. "It's not just about how cheap or expensive the average homes are in an area. You can find a house at a very reasonable price in some parts of the country, but the area may not provide many opportunities to get ahead."
Besides price, Jalali recommends focusing on quality-of-life factors. "A top city for first-time homebuyers should boast an educated population, diverse economy with robust job opportunities, and a business-friendly economic climate," Jalali says. "That's critical to the long-term success of an area and its housing market."
Economic factors beyond the control of new homebuyers play a big role in home purchase opportunities across the U.S.
"In some of the worst cities, the housing prices are approaching a housing bubble that is about to burst," says Joe Melendez, founder at ValueInsured.com. "In fact, recent research concludes that at least 35 of the 100 largest metropolitan housing markets are overvalued. With these inflated, sky-high values a decade after the last housing crash, many Americans cannot afford to buy. And those who can, now have to worry about buying at the top of the market."
Most financial experts believe that a healthy level for households is spending less than 30% of income on housing. However, many metro areas exceed that amount, says Alex Villacorta, executive vice president of analytics at HouseCanary, which tracks the U.S. housing market on a regular basis.
"In fact, in some of the largest metros in the country, the problem has become so acute that residents are spending well over 30% of their household income on housing," Villacorta says. "Thirteen of the top 100 metro areas passed that critical and worrisome barrier in 2017. In total, 30 of the top 100 are above 30%, five are above 50%, and some neighborhoods within these metros top 70%.
As an example, with the exception of the given outliers like San Francisco and New York, affordability plagues markets such as Denver, Las Vegas and even Fresno, Calif. with homeowners spending nearly 40% of their household income on housing in these areas, Villacorta adds.
Being priced out of a favorite market may be the worst news of all for newbie homebuyers. But that's the reality right now in the U.S. residential real estate market, and things could get worse before they get better.