Despite Affordability Concerns, First-Time Homebuyers Remain Optimistic 

Despite ongoing concerns about affordability and interest rates, most first-time homebuyers remain positive about the housing market in 2024 and are prepared to spend, according to annual research by TD Bank.

With home prices temporarily falling after reaching an all-time high in 2023, according to the January Case-Shiller Index, TD’s Annual First-Time Homebuyer Pulse found that nearly three-quarters (74%) of those looking to buy a home in the coming year were optimistic about the housing market. And virtually all (97%) have already begun taking the first steps in the home-buying process.

Despite Ongoing Economic Conditions, Buyers Remain Positive

Perhaps with increased expectation for reduced interest rates in mid-2024, 40% of respondents thought that now is a good time to buy a house. Plus, more than three-quarters (78%) of first-time homebuyers believed their personal financial status would remain steady in 2024.

“Based on the industry consensus, homebuyers can potentially look forward to rates easing a bit, but the financial steps needed to purchase a home should remain top of mind, with one of the most important being to speak with a mortgage professional early in the process,” said Steve Kaminski, Head of U.S. Residential Lending at TD Bank. “Rates are central to affordability for many, but with a moderate decline in rates forecasted, buyers will still have to contend with low home supply and relatively high home prices. An experienced lender can help consumers navigate the interest rate and housing environment by providing mortgage options that can support their budget and best fit their financial situation.”

Though some reductions in interest rates appear to be on the horizon in 2024, over two-thirds (63%) of first-time homebuyers mentioned rates as a concern about their ability to afford a home in the current market. This is only down 1% from last year, indicating that, despite optimism, interest rates remain a major concern for consumers intending to buy a property.

This confidence has translated into action, with nearly all respondents (97%) already taking steps in the homebuying process. Approximately half (47%) have begun saving for a down payment, and nearly two in five respondents (38%) have created a budget for their home purchase. The study also indicated that first-time homebuyers are willing to spend more on their first homes, with 40% planning to spend $300,000 or more, a 9% increase from last year.

Location Preferences Vary When Finding a Forever Home

This year’s study also showed an increase in respondents’ desire for everlasting homes, with 48% intending to buy one, up 7% from 2023. In contrast, interest in fixer-uppers or starter houses has fallen, with only 52% of respondents considering such properties, a 7% drop from the previous year. Among those looking for fixer-uppers or starter homes, 40% want to locate a more affordable home.

When it comes to house purchasing considerations, first-time buyers cited proximity to schools and businesses as top concerns. Over one-quarter (26%) listed access to reputable schools and daycare as one of their top two priorities, while 22% emphasized proximity to their workplace.

Additional Purchasing Considerations:

  • Overpaying Fears Remain: In light of housing prices over the past several years and the competitive marketplace, nearly two-thirds (62%) of respondents have concerns about overspending on their first home.
  • Split on Lender Engagement: Mirroring the 2023 results, respondents are most likely to believe the best time to engage with a lender is as soon as they decide to buy a home, before looking (42%). One in three (33%) feel the best time is after they begin looking at houses, 25% believe lender services aren’t necessary until they find the home they want to buy.
  • Rising Popularity of ARMs and Down Payment Assistance: While 84% of first-time buyers plan to borrow for their home purchase, with 64% opting for mortgages, there’s a sharp rise in interest in adjustable-rate mortgages (ARMs), with 23% considering them—up from 12% in 2023. Additionally, over two in five buyers (42%) anticipate utilizing down payment assistance programs, up from 35% in 2023. These trends reflect a growing willingness among buyers to explore diverse financing options to achieve homeownership.

First-time homebuyers also express a strong preference for suburban life. More over two-fifths (43%) of first-time homebuyers prefer suburban locations to city living (28%), small towns (17%), and rural areas.

Urban living is also gaining appeal, with the number of first-time homebuyers preferring large cities or metro areas increasing by 6% in the last year. Notably, Gen Z purchasers are driving the interest in urban living, with 31% reporting a preference for large city/metro region properties, compared to 29% for millennials and only 22% for Gen X and baby boomers.

For First-Time Buyers, There’s Much More to Learn

Despite 79% of low-to-moderate income (LMI) respondents expressed confidence or neutrality in their financial knowledge of mortgages and homebuying, a shocking 46% are unaware of down payment assistance schemes that need lesser initial contributions.

More than four in five LMI respondents identified the affordability of a down payment (82%) and a mortgage/other monthly expenses (81%) as one of the top three challenges they face as they begin the homebuying process.

“Down payments have remained an obstacle to the wealth vehicle of homeownership, but there are tools to alleviate some of the burdensome upfront costs,” said Kaminski. “Educating first-time homebuyers about the resources down payment assistance programs can provide, as well as the associated monthly costs of homeownership, can help them accomplish their dream of owning a home and strengthen their financial position over the long-term.”

To read the full report, including more data, charts, and methodology, click here.

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Demetria C. Lester

Demetria C. Lester is a reporter for MortgagePoint (formerly DS News and MReport) with more than eight years of writing and editing experience. She has served as content coordinator and copy editor for the Los Angeles Daily News and the Orange County Register, in addition to 11 other Southern California publications. A former editor-in-chief at Northlake College and staff writer at her alma mater, the University of Texas at Arlington, she has covered events such as the Byron Nelson and Pac-12 Conferences, progressing into her freelance work with the Dallas Wings and D Magazine. Currently located in Dallas, Texas, Lester is a jazz aficionado, Harry Potter fanatic, and likes to read. She can be reached at demetria.lester@thefivestar.com.
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