2015’s Best and Worst Cities for First-Time Home Buyers

by Richie Bernardo

WH-Best-Home-Buyer-Badges-150x150Buying a home for the first time is an exciting and important milestone in the lives of most consumers. That was, at least, until the housing bubble collapsed nearly a decade ago. Today, home buyers are more skeptical than ever in the wake of the financial crisis, especially given the drastic variations in economic recovery across the U.S.

In 2014, the National Association of Realtors® reported that among buyers of primary residences, 33 percent were first-timers, whereas the historical average has been 40 percent for this group. And according to a recent Gallup poll, 41 percent of non-homeowners in 2015 don’t plan to buy a home in the foreseeable future, compared with 31 percent two years ago.

But there are those harboring the opposite sentiment. For consumers whose zeal for home-buying remains strong, WalletHub compared the 300 U.S. cities to determine the attractiveness of their first-time home-buyer markets. We examined our sample using 18 key metrics, ranging from housing costs to real-estate taxes to property crime rates. Our findings, expert commentary and a detailed methodology can be found below.

Main Findings

Embed on your website

 

Overall Rank

City

“Housing Affordability” Rank

“Real-Estate Market” Rank

“Living Environment” Rank

1 Overland Park, KS 32 25 3
2 Allen, TX 14 31 4
3 Centennial, CO 7 47 9
4 Broken Arrow, OK 5 53 30
5 Frisco, TX 20 32 11
6 Plano, TX 34 33 15
7 Carrollton, TX 34 20 18
8 McKinney, TX 37 30 12
9 Longmont, CO 41 37 1
10 Thornton, CO 30 45 4
11 Grand Prairie, TX 58 15 10
12 Richardson, TX 42 14 22
13 Arvada, CO 23 50 13
14 Norman, OK 15 38 49
15 Colorado Springs, CO 17 77 16
16 Gilbert, AZ 2 94 62
17 Garland, TX 75 26 17
18 Montgomery, AL 12 4 276
19 Westminster, CO 13 79 20
20 Arlington, TX 57 18 34
21 Greeley, CO 64 28 27
22 Austin, TX 146 2 37
23 Denton, TX 143 10 6
24 Irving, TX 119 16 21
25 Virginia Beach, VA 16 127 19
26 Murfreesboro, TN 29 13 199
27 Raleigh, NC 28 58 50
28 Naperville, IL 21 86 28
29 Boca Raton, FL 38 68 39
30 Fort Collins, CO 116 54 2
31 Roswell, GA 40 42 93
32 Oklahoma City, OK 51 27 97
33 Lincoln, NE 47 87 26
34 Chesapeake, VA 8 224 24
35 Omaha, NE 63 36 60
36 Pittsburgh, PA 148 6 67
37 Tulsa, OK 88 19 74
38 Lexington, KY 18 59 118
39 Chandler, AZ 4 184 78
40 Mesquite, TX 74 48 51
41 Louisville, KY 27 21 212
42 Fort Worth, TX 86 52 46
43 Cary, NC 3 150 132
44 Amarillo, TX 193 23 40
45 Aurora, CO 85 70 35
46 Joliet, IL 19 150 42
47 Sterling Heights, MI 22 56 232
48 Cedar Rapids, IA 25 91 111
49 Davenport, IA 71 41 118
50 Boise, ID 49 266 14
51 Peoria, AZ 11 105 148
52 Columbus, OH 94 76 25
53 Cape Coral, FL 81 75 32
54 Houston, TX 277 1 103
55 Nashville, TN 95 24 136
56 Fort Wayne, IN 110 49 85
57 Surprise, AZ 10 142 178
58 El Paso, TX 276 63 8
59 Springfield, IL 26 64 235
60 Charlotte, NC 84 29 177
61 Pembroke Pines, FL 52 139 41
62 Aurora, IL 43 152 57
63 Scottsdale, AZ 39 178 53
64 Lakewood, CO 70 79 94
65 Augusta, GA 66 96 66
66 Des Moines, IA 60 92 105
67 Durham, NC 78 85 88
68 Sandy Springs, GA 100 69 80
69 Livonia, MI 9 112 274
70 Elgin, IL 50 168 47
71 Huntsville, AL 6 99 278
72 Denver, CO 137 108 29
73 Hampton, VA 48 169 54
74 Winston-Salem, NC 111 40 168
75 Corpus Christi, TX 203 11 95
76 Murrieta, CA 118 73 63
77 Savannah, GA 183 9 198
78 Plantation, FL 33 128 196
79 Mission Viejo, CA 59 118 100
80 Elk Grove, CA 62 101 126
81 Tampa, FL 167 104 23
82 Irvine, CA 128 97 56
83 Pueblo, CO 101 88 83
84 Fort Smith, AR 68 16 295
85 Thousand Oaks, CA 126 81 70
86 Madison, WI 175 84 33
87 Birmingham, AL 119 5 277
88 Columbus, GA 31 106 234
89 Charleston, SC 68 57 257
90 Newport News, VA 71 194 44
91 Port St. Lucie, FL 83 100 127
92 Green Bay, WI 105 120 61
93 Dallas, TX 282 3 76
94 Kenosha, WI 108 148 43
95 Temecula, CA 87 109 120
96 Rancho Cucamonga, CA 80 147 98
97 Alexandria, VA 90 180 31
98 Athens-Clarke, GA 205 35 113
99 Bellevue, WA 73 203 48
100 St. Petersburg, FL 82 144 114
101 Wichita, KS 171 133 65
102 Mesa, AZ 46 155 172
103 Fayetteville, NC 24 173 215
104 Henderson, NV 45 276 69
105 Palm Bay, FL 44 162 187
106 Santa Clarita, CA 128 119 89
107 Greensboro, NC 139 62 158
108 Warren, MI 102 34 290
109 Rochester, NY 194 22 200
110 Jacksonville, FL 77 149 143
111 Roseville, CA 91 134 130
112 Coral Springs, FL 135 115 68
113 High Point, NC 79 66 268
114 Toledo, OH 143 137 64
115 Fremont, CA 103 250 45
116 Boulder, CO 226 98 7
117 Clearwater, FL 127 82 176
118 Simi Valley, CA 117 136 99
119 Vacaville, CA 89 177 87
120 Shreveport, LA 112 8 282
121 Memphis, TN 157 55 192
122 Miramar, FL 114 159 90
123 Bakersfield, CA 98 154 138
124 Erie, PA 178 60 163
125 Orange, CA 133 113 130
126 Davie, FL 131 121 123
127 Carlsbad, CA 136 128 108
128 Atlanta, GA 222 51 129
129 Dearborn, MI 67 77 288
130 New Orleans, LA 249 12 188
131 Minneapolis, MN 204 131 52
132 Hillsboro, OR 76 248 86
133 Lakeland, FL 93 132 210
134 St. Paul, MN 154 243 36
135 Huntington Beach, CA 107 184 124
136 Roanoke, VA 161 90 143
137 Peoria, IL 134 107 173
138 Philadelphia, PA 191 83 125
139 Little Rock, AR 92 39 292
140 Spokane Valley, WA 97 258 101
141 Grand Rapids, MI 124 43 267
142 Chula Vista, CA 219 111 59
143 Anchorage, AK 65 237 156
144 Laredo, TX 279 210 37
145 Corona, CA 99 246 84
146 San Antonio, TX 248 165 76
147 Baton Rouge, LA 121 116 208
148 Clovis, CA 60 205 236
149 Sunrise, FL 106 191 157
150 Cincinnati, OH 267 44 107
151 San Diego, CA 166 199 79
152 Portsmouth, VA 109 236 104
153 Norfolk, VA 159 273 73
154 Visalia, CA 56 200 258
155 Mobile, AL 55 88 296
156 Oceanside, CA 229 71 139
157 Phoenix, AZ 113 194 204
158 Allentown, PA 168 145 146
159 Cambridge, MA 1 300 165
160 Kansas City, MO 254 153 102
161 Tuscaloosa, AL 138 46 297
162 Glendale, AZ 122 182 224
163 Richmond, VA 256 65 145
164 Torrance, CA 132 245 115
165 Akron, OH 123 198 209
166 Orlando, FL 183 158 161
167 Reno, NV 182 201 128
168 Cleveland, OH 190 114 213
169 Moreno Valley, CA 159 159 182
170 Yakima, WA 207 175 81
171 Albuquerque, NM 96 274 175
172 Salt Lake City, UT 36 292 182
173 Fontana, CA 147 226 154
174 St. Louis, MO 219 95 189
175 Garden Grove, CA 218 181 75
176 Carson, CA 130 225 214
177 Vancouver, WA 200 256 55
178 Knoxville, TN 176 110 247
179 Waukegan, IL 153 213 151
180 Baltimore, MD 244 102 150
181 Ontario, CA 162 214 160
182 Milwaukee, WI 225 138 155
183 San Jose, CA 214 250 91
184 North Las Vegas, NV 52 290 217
185 North Charleston, SC 124 67 299
186 Oxnard, CA 209 184 134
187 Buffalo, NY 151 235 206
188 Waterbury, CT 150 163 254
189 Yuma, AZ 54 215 293
190 West Covina, CA 181 179 191
191 Burbank, CA 199 207 111
192 Costa Mesa, CA 210 125 218
193 Quincy, MA 230 170 81
194 Spokane, WA 148 265 164
195 Sunnyvale, CA 174 253 110
196 Rockford, IL 141 159 275
197 Seattle, WA 155 286 109
198 Riverside, CA 169 275 137
199 Stamford, CT 223 143 165
200 Tempe, AZ 115 227 264
201 Anaheim, CA 241 174 141
202 Wilmington, NC 173 121 280
203 Santa Rosa, CA 236 209 105
204 Tallahassee, FL 213 117 246
205 San Mateo, CA 142 261 193
206 El Cajon, CA 280 61 152
207 Manchester, NH 163 222 219
208 Las Vegas, NV 104 283 223
209 Lowell, MA 242 124 170
210 Pasadena, CA 164 249 169
211 Dayton, OH 158 176 261
212 Boston, MA 258 172 116
213 Fullerton, CA 192 223 167
214 Ann Arbor, MI 189 140 265
215 Renton, WA 152 280 122
216 Fairfield, CA 165 208 249
217 Tacoma, WA 140 284 159
218 Ventura, CA 208 192 201
219 Santa Clara, CA 170 247 195
220 Concord, CA 195 211 216
221 Worcester, MA 197 232 197
222 Modesto, CA 187 183 259
223 Santa Monica, CA 180 230 245
224 Glendale, CA 263 231 72
225 Escondido, CA 268 103 171
226 Hollywood, FL 221 141 250
227 Los Angeles, CA 272 220 92
228 Sacramento, CA 179 288 149
229 Portland, OR 249 242 139
230 Norwalk, CA 201 264 162
231 Santa Ana, CA 247 268 117
232 Jackson, MS 287 7 283
233 Victorville, CA 177 259 232
234 West Palm Beach, FL 260 74 271
235 Beaverton, OR 186 294 58
236 Rialto, CA 232 196 190
237 Tucson, AZ 227 192 231
238 Honolulu, HI 231 270 121
239 Daly City, CA 172 282 173
240 Fort Lauderdale, FL 239 145 253
241 San Francisco, CA 212 263 206
242 Pompano Beach, FL 211 166 266
243 Kent, WA 202 278 142
244 Springfield, MO 240 217 226
245 Stockton, CA 234 196 239
246 Flint, MI 188 72 300
247 Fresno, CA 237 216 221
248 Washington, DC 145 269 263
249 Federal Way, WA 198 271 181
250 Salem, OR 233 206 238
251 Jersey City, NJ 265 287 71
252 Westminster, CA 257 167 222
253 Chicago, IL 278 202 135
254 Albany, NY 246 157 256
255 Downey, CA 217 260 205
256 Bridgeport, CT 238 156 270
257 Antioch, CA 216 189 273
258 Springfield, MA 235 164 269
259 Brockton, MA 185 281 240
260 Hialeah, FL 290 233 96
261 Gainesville, FL 275 121 225
262 Hayward, CA 215 257 244
263 Indianapolis, IN 206 298 228
264 Palmdale, CA 245 244 179
265 Miami Gardens, FL 224 240 243
266 Detroit, MI 196 187 285
267 Lancaster, CA 255 239 194
268 Long Beach, CA 252 289 153
269 Yonkers, NY 285 204 185
270 Fall River, MA 288 212 211
271 Santa Maria, CA 228 254 271
272 Hartford, CT 274 134 278
273 Gresham, OR 261 238 252
274 Vista, CA 289 130 236
275 Lynn, MA 294 188 240
276 Elizabeth, NJ 286 190 220
277 Vallejo, CA 156 285 289
278 Santa Barbara, CA 251 262 255
279 Chico, CA 264 277 186
280 Pomona, CA 259 272 240
281 Berkeley, CA 253 233 284
282 Newark, NJ 299 171 203
283 New Haven, CT 295 126 286
284 Everett, WA 243 297 201
285 Providence, RI 273 221 281
286 South Gate, CA 293 218 227
287 San Bernardino, CA 269 291 228
288 Lansing, MI 281 93 298
289 El Monte, CA 296 229 147
290 Eugene, OR 283 255 250
291 Inglewood, CA 284 267 230
292 Salinas, CA 266 252 286
293 Paterson, NJ 298 219 182
294 Miami, FL 300 241 180
295 New York, NY 270 299 133
296 Oakland, CA 271 296 261
297 New Bedford, MA 297 279 248
298 Miami Beach, FL 292 228 290
299 Richmond, CA 262 293 294
300 Compton, CA 291 295 260

Best-Cities-for-First-Time-Home-Buyers-Artwork-2

Rankings by City Size

Large City ranking

Embed on your website

 

Medium-Sized City ranking

Embed on your website

 

Small City ranking

Embed on your website

 

Overall Rank

Large Cities

Medium-Sized Cities

Small Cities

1 Colorado Springs, CO Overland Park, KS Allen, TX
2 Arlington, TX Plano, TX Centennial, CO
3 Austin, TX Grand Prairie, TX Broken Arrow, OK
4 Virginia Beach, VA Gilbert, AZ Frisco, TX
5 Raleigh, NC Garland, TX Carrollton, TX
6 Oklahoma City, OK Montgomery, AL McKinney, TX
7 Omaha, NE Irving, TX Longmont, CO
8 Pittsburgh, PA Lincoln, NE Thornton, CO
9 Tulsa, OK Chesapeake, VA Richardson, TX
10 Lexington, KY Chandler, AZ Arvada, CO
11 Louisville, KY Amarillo, TX Norman, OK
12 Fort Worth, TX Boise, ID Westminster, CO
13 Aurora, CO Peoria, AZ Greeley, CO
14 Columbus, OH Cape Coral, FL Denton, TX
15 Houston, TX Fort Wayne, IN Murfreesboro, TN
16 Nashville, TN Pembroke Pines, FL Naperville, IL
17 El Paso, TX Aurora, IL Boca Raton, FL
18 Charlotte, NC Scottsdale, AZ Fort Collins, CO
19 Denver, CO Augusta, GA Roswell, GA
20 Corpus Christi, TX Des Moines, IA Mesquite, TX
21 Tampa, FL Durham, NC Cary, NC
22 Dallas, TX Huntsville, AL Joliet, IL
23 Wichita, KS Winston-Salem, NC Sterling Heights, MI
24 Mesa, AZ Elk Grove, CA Cedar Rapids, IA
25 Jacksonville, FL Irvine, CA Davenport, IA
26 Memphis, TN Madison, WI Surprise, AZ
27 Bakersfield, CA Birmingham, AL Springfield, IL
28 Atlanta, GA Columbus, GA Lakewood, CO
29 New Orleans, LA Newport News, VA Sandy Springs, GA
30 Minneapolis, MN Port St. Lucie, FL Livonia, MI
31 Philadelphia, PA Rancho Cucamonga, CA Elgin, IL
32 San Antonio, TX St. Petersburg, FL Hampton, VA
33 San Diego, CA Fayetteville, NC Murrieta, CA
34 Phoenix, AZ Henderson, NV Savannah, GA
35 Kansas City, MO Santa Clarita, CA Plantation, FL
36 Cleveland, OH Greensboro, NC Mission Viejo, CA
37 Albuquerque, NM Rochester, NY Pueblo, CO
38 St. Louis, MO Toledo, OH Fort Smith, AR
39 Baltimore, MD Fremont, CA Thousand Oaks, CA
40 Milwaukee, WI Shreveport, LA Charleston, SC
41 San Jose, CA St. Paul, MN Green Bay, WI
42 Seattle, WA Huntington Beach, CA Kenosha, WI
43 Riverside, CA Little Rock, AR Temecula, CA
44 Anaheim, CA Grand Rapids, MI Alexandria, VA
45 Las Vegas, NV Chula Vista, CA Athens-Clarke, GA
46 Boston, MA Anchorage, AK Bellevue, WA
47 Los Angeles, CA Laredo, TX Palm Bay, FL
48 Sacramento, CA Corona, CA Warren, MI
49 Portland, OR Baton Rouge, LA Roseville, CA
50 Santa Ana, CA Cincinnati, OH Coral Springs, FL
51 Tucson, AZ Norfolk, VA High Point, NC
52 Honolulu, HI Mobile, AL Boulder, CO
53 San Francisco, CA Oceanside, CA Clearwater, FL
54 Fresno, CA Glendale, AZ Simi Valley, CA
55 Washington, DC Richmond, VA Vacaville, CA
56 Chicago, IL Akron, OH Miramar, FL
57 Indianapolis, IN Orlando, FL Erie, PA
58 Detroit, MI Reno, NV Orange, CA
59 Long Beach, CA Moreno Valley, CA Davie, FL
60 Miami, FL Salt Lake City, UT Carlsbad, CA
61 New York, NY Fontana, CA Dearborn, MI
62 Oakland, CA Garden Grove, CA Hillsboro, OR
63 Vancouver, WA Lakeland, FL
64 Knoxville, TN Roanoke, VA
65 Ontario, CA Peoria, IL
66 North Las Vegas, NV Spokane Valley, WA
67 Oxnard, CA Clovis, CA
68 Buffalo, NY Sunrise, FL
69 Spokane, WA Portsmouth, VA
70 Rockford, IL Visalia, CA
71 Tempe, AZ Allentown, PA
72 Santa Rosa, CA Cambridge, MA
73 Tallahassee, FL Tuscaloosa, AL
74 Tacoma, WA Torrance, CA
75 Worcester, MA Yakima, WA
76 Modesto, CA Carson, CA
77 Glendale, CA Waukegan, IL
78 Jackson, MS North Charleston, SC
79 Fort Lauderdale, FL Waterbury, CT
80 Springfield, MO Yuma, AZ
81 Stockton, CA West Covina, CA
82 Salem, OR Burbank, CA
83 Jersey City, NJ Costa Mesa, CA
84 Springfield, MA Quincy, MA
85 Hialeah, FL Sunnyvale, CA
86 Palmdale, CA Stamford, CT
87 Lancaster, CA Wilmington, NC
88 Yonkers, NY San Mateo, CA
89 Pomona, CA El Cajon, CA
90 Newark, NJ Manchester, NH
91 Providence, RI Lowell, MA
92 San Bernardino, CA Pasadena, CA
93 Eugene, OR Dayton, OH
94 Salinas, CA Fullerton, CA
95 Ann Arbor, MI
96 Renton, WA
97 Fairfield, CA
98 Ventura, CA
99 Santa Clara, CA
100 Concord, CA
101 Santa Monica, CA
102 Escondido, CA
103 Hollywood, FL
104 Norwalk, CA
105 Victorville, CA
106 West Palm Beach, FL
107 Beaverton, OR
108 Rialto, CA
109 Daly City, CA
110 Pompano Beach, FL
111 Kent, WA
112 Flint, MI
113 Federal Way, WA
114 Westminster, CA
115 Albany, NY
116 Downey, CA
117 Bridgeport, CT
118 Antioch, CA
119 Brockton, MA
120 Gainesville, FL
121 Hayward, CA
122 Miami Gardens, FL
123 Fall River, MA
124 Santa Maria, CA
125 Hartford, CT
126 Gresham, OR
127 Vista, CA
128 Lynn, MA
129 Elizabeth, NJ
130 Vallejo, CA
131 Santa Barbara, CA
132 Chico, CA
133 Berkeley, CA
134 New Haven, CT
135 Everett, WA
136 South Gate, CA
137 Lansing, MI
138 El Monte, CA
139 Inglewood, CA
140 Paterson, NJ
141 New Bedford, MA
142 Miami Beach, FL
143 Richmond, CA
144 Compton, CA

 

Ask the Experts

Purchasing real estate for the first time is understandably a nerve-racking endeavor for many consumers. It’s neither a decision to take lightly nor a transaction to conduct without the assistance of a professional. To help ease the process, we’ve asked a panel of experts to provide insightful advice for inexperienced home buyers. Click on the experts’ profiles below to read their bios and responses to the following key questions:

  1. What should first-time home buyers consider when choosing a neighborhood?
  2. How do you know that you are financially ready to buy your first home?
  3. What do you recommend as the minimum down payment for a first-time home buyer?
  4. Will the market for first-time home buyers make a comeback in 2015?
  5. How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?
< >
  • Eric Tymoigne Assistant Professor of Economics at Lewis & Clark College
  • Robert Van Order Oliver Carr Chair in Real Estate and Professor of Finance and Economics at The George Washington University School of Business
  • Fred A. Forgey Director for the Master of Science in Real Estate Development Program at Nova Southeastern University, H. Wayne Huizenga School of Business and Entrepreneurship
  • Richard Martin Associate Professor in the Real Estate Program at University of Georgia, Terry College of Business
  • Martin Shields Professor of Economics and Director of the Regional Economics Institute at Colorado State University
  • Stijn Van Nieuwerburgh Professor of Finance, Yamaichi Faculty Fellow and Director of the Stern Center for Real Estate Finance Research at New York University, Leonard N. Stern School of Business
  • Edwin Mills Professor Emeritus of Real Estate and Finance at Northwestern University, Kellogg School of Management
  • Arthur Cox Associate Professor of Finance and Director of the Center for Real Estate Education at University of Northern Iowa, College of Business Administration
  • William R. Emmons Senior Economic Advisor in the Center for Household Financial Stability at Federal Reserve Bank of St. Louis
  • Michael M. Sandez Professor of Law at Liberty University, School of Law
  • Ivan J. Miestchovich Director of the Institute for Economic Development and Real Estate Research at University of New Orleans
  • Anthony Flint Fellow and Director of Public Affairs at the Lincoln Institute of Land Policy
  • Clifford Rossi Professor of the Practice & Executive-in-Residence at University of Maryland, Robert H. Smith School of Business
  • Timothy Riddiough Professor in the Department of Real Estate and Urban Land Economics at University of Wisconsin-Madison, School of Business
  • Christian L. Redfearn Borstein Family Endowed Professor of Real Estate Price and Director of Graduate Programs in Real Estate at University of Southern California, School of Public Policy
  • G. Stacy Sirmans Department Chair and Kenneth G. Bacheller Professor of Real Estate at Florida State University, College of Business
  • Mark Lane Associate Professor of Finance at Old Dominion University

Eric Tymoigne

Assistant Professor of Economics at Lewis & Clark College
Eric Tymoigne
What should first-time home buyers consider when choosing a neighborhood?

It varies with what people want to do while staying in the house. For example, if you plan to have kids and to stay in the house during the entire upbringing, then public-school quality is at top of the list together with kid-friendly amenities, and safety.

How do you know that you are financially ready to buy your first home?

When you know you can still save money if you wish even after you made the mortgage payment on top of all other required expenses.

What do you recommend as the minimum down payment for a first-time home buyer?

20%.

Will the market for first time home-buyers make a comeback in 2015?

Buying a house with relative comfort requires quite a bit of financial strength. This means stable income high enough to meet the debt service as well as a comfortable amount of savings. Job market for young adults is still slow so they may not be the first time buyers. Maybe foreigners in search for real estate investment, but recent international developments are not helping here either.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

They have done plenty already (low down payment, preferential terms, etc.) - probably too much. Not everybody is financially ready to own a home. Renting may make a lot of sense.

Robert Van Order

Oliver Carr Chair in Real Estate and Professor of Finance and Economics at The George Washington University School of Business
Robert Van Order
What should first-time home buyers consider when choosing a neighborhood?

Depends on how long they expect to stay and the type of unit. If short run and, say, a condo, look to how strong sales have been and if they can resell. If more permanent, it depends on lifestyle - e.g., if looking to raise kids, first thing might be schools – otherwise, amenities like accessibility, being able to walk, commuting time, and restaurants. Also check crime rate. No matter what, they will have to balance trade-offs - e.g., between distance to work and cost. Be sure to study sales of comparable housing in the area.

How do you know that you are financially ready to buy your first home?

When you are ready to commit to handling the hassle, and you have good credit. Begin a few years ahead, with accumulating money for down payment and doing things to make credit score look good. You can still buy with 5% or less down, so that is not as important as credit score and understanding the responsibility. Remember that you don’t have to own - and renting can be good choice.

What do you recommend as the minimum down payment for a first-time home buyer?

Whatever you can get away with. Leverage is a good thing if don’t have to pay too much for it. See what payments fit into your budget. If you can do 20% down, you can save on mortgage insurance (private of government) cost. Also look into combined cost of a 20% downpayment first mortgage and a second mortgage along with it.

Downpayment isn’t the only thing that matters. Look into an adjustable rate mortgage where the payment is fixed for a while and matches your expected time before selling.

Will the market for first time home-buyers make a comeback in 2015?

Maybe, but lending standards, especially regarding credit score, are still quite conservative, so upside is limited.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

The major constraint now is excessively conservative underwriting, which has mostly to do with the federal level encouraging it. So get Fannie Mae and Freddie Mac to buy more loans with low FICO scores (but charge more for them) and less buy back risk. I am skeptical of affordability programs, as they are likely to be inefficient. I am in favor of using housing vouchers for mortgage payments. I also favor relaxing zoning to increase supply-for both rental and owner-occupied. Most first time buyers do not need subsidies as much as they need well-functioning markets.

Fred A. Forgey

Director for the Master of Science in Real Estate Development Program at Nova Southeastern University, H. Wayne Huizenga School of Business and Entrepreneurship
Fred A. Forgey
What should first-time home buyers consider when choosing a neighborhood?

Close proximity to those goods, services, facilities that are uniquely important to them.

How do you know that you are financially ready to buy your first home?

Having at least enough personal savings to cover up to 6 months of mortgage payments in case of unforeseen financial emergencies.

What do you recommend as the minimum down payment for a first-time home buyer?

5% should be a bare minimum to ensure that the buyer has some “skin in the game”, therefore less likely to default.

Will the market for first time home-buyers make a comeback in 2015?

Depends on interest rates and unemployment remaining low. However, there is a growing culture and belief that home ownership and employment stability is not what it once was; therefore, there is no need to make such a long-term commitment to housing choice.

Richard Martin

Associate Professor in the Real Estate Program at University of Georgia, Terry College of Business
Richard Martin
What should first-time home buyers consider when choosing a neighborhood?

Depends on how long the buyers are expecting to stay. If they view the home as a starter home with a goal of moving up relatively quickly then, obviously, they need to be looking for a neighborhood with a strong upward trajectory. In fact, they may want to consider a neighborhood that isn't currently so nice (in order to spend less) but they think will appreciate quickly. If they are going to stay for a while they need to be focused on neighborhood attributes that they are likely to value in the future. For example, they may be childless at the moment but will want to consider school quality because it could be a concern in a few years.

What do you recommend as the minimum down payment for a first-time home buyer?

Given the historically low levels of current interest rates I see no reason to put down any more than the lender is requiring of you.

Will the market for first time home-buyers make a comeback in 2015?

The most recent signs point to an increase in first time home buyers. However, the likelihood of interest rate increases (whenever they actually occur) makes this recovery fragile. If interest rates begin to increase soon and if the increases are substantial then the current increase may reverse itself.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

Reduce barriers to new home construction. Nothing keeps home ownership affordable like allowing homebuilders to quickly respond to price increases by building new home when they are affordable.

Martin Shields

Professor of Economics and Director of the Regional Economics Institute at Colorado State University
Martin Shields
What should first-time home buyers consider when choosing a neighborhood?

Will it suit their needs for the next five years and what do they think the neighborhood will be like then? Good local schools drive up property values, even in places with school choice. Many first time buyers sell within 5 to 7 years. If the buyers don’t have kids, they often don’t really need to consider how good the neighborhood school is. What are some other costs associated with the neighborhood? If you choose a neighborhood close to work, then maybe you can get by with one car instead of two. Are neighborhood prices on an upward or downward trajectory? Usually those trends take a while to turn around.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

This is a really interesting question, with both practical and philosophical dimensions. For some reason, home ownership has been idealized as part of “the American dream”? Why is that? And if so, what role does government have in helping people achieve it, if any. Although shelter is a basic need, it’s a cold reality that when income is not equally distributed, then richer people get the first choice.

Housing prices are determined largely by market forces. Everyone wants a nice house in a great neighborhood. Those are relatively scarce. Some people have higher paying jobs or more wealth than others, or are willing to make greater sacrifices on other spending items, and those are the people that win the bidding wars. Not sure if that’s “fair,” but economists tend to shy away from such discussions.

Yet there are some institutional factors at play, too. Land use restrictions (such as zoning) and building regulations (such as minimum lot sizes) can limit housing supply, making it more expensive. Thus, facilitating increased density would help (but NIMBYism largely prevents those things).

Many first time buyers are saddled with student debt. Policies that either reduce existing debt loads, or in the longer term, reduce the need to take on student debt (through increased government spending on higher education, perhaps) would allow first time buyers to better save.

Another important dimension is the labor market. People need money to buy a house. And as housing gets more expensive, people need more of it. Yet wages for many workers, especially those without a 4-year college degree, are either flat for falling. Part of the housing affordability “solution” is to create more higher paying jobs, especially for people without a bachelor’s degree.

Stijn Van Nieuwerburgh

Professor of Finance, Yamaichi Faculty Fellow and Director of the Stern Center for Real Estate Finance Research at New York University, Leonard N. Stern School of Business
Stijn Van Nieuwerburgh
What should first-time home buyers consider when choosing a neighborhood?

The most important aspect is that the quality of life is good: good schools, low crime, proximity of amenities and shopping, etc. The second important aspect is that it needs to be a place where others would like to live as well, so as to guarantee a good resale prospect (most Americans move 7 times in their lifetime). Walkable urban neighborhoods have been enjoying a lot of interest, for example.

How do you know that you are financially ready to buy your first home?

Buying a home is a substantial commitment. In addition to the monthly mortgage payment, there are property taxes, homeowners insurance, and regular maintenance expenses which add up to 3-6% of the value of the house each year. And that is absent major maintenance expenses such as roof replacement, new HVAC systems, kitchen remodeling, etc. Therefore, it is important to have some financial buffer before making the plunge. I think a good rule of thumb is that the total cost of spending on a house should not be much more than a third of total spending budget.

What do you recommend as the minimum down payment for a first-time home buyer?

I think that putting 20% down is a good rule to follow. It allows one to start off with a decent equity cushion to withstand a potential price fall. It is unwise to gamble on future price appreciation; that ended very badly for 7 million home owners in the past decade.

Will the market for first time home-buyers make a comeback in 2015?

Interest rates remain low and houses remain historically affordable. With the labor market having improved steadily for the past 5 years, people are regaining their financial footing. Young people are ready to form their own households again, and many of them have the financial stability to make the plunge into home ownership.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

The government has been increasing affordability in the wrong way over the past 50 years. By subsidizing mortgage debt (through the mortgage interest rate deductibility and the GSEs, for example), it has led households to become more indebted and has pushed them to buy houses that are much larger than what they need. Recent changes such as the FHA's decision to lower downpayments to 3% are exactly going in the wrong direction, and we will pay the price for this in the future. A much better policy would be for the government to help first-time home buyers with their downpayment. If first-time home buyers put down 10% and the government put down another 10%, there would be 20% equity in the house. This would have enormous positive implications for the overall leverage of households and the U.S. economy. It would make the financial sector a lot safer as well. The government should also facilitate private sector innovations that promote the creation of home equity.

Edwin Mills

Professor Emeritus of Real Estate and Finance at Northwestern University, Kellogg School of Management
Edwin Mills
What should first-time home buyers consider when choosing a neighborhood?

Quality, price and location of neighborhood. Basically, same as experienced buyers. However, first time buyers who are financially constrained need to pay certain attention to price, mortgage term prospects and stability of neighborhood.

How do you know that you are financially ready to buy your first home?

Having a good job with strong prospects for the future is crucial. Also important is having a big enough down payment to enable you to obtain a mortgage on good terms.

What do you recommend as the minimum down payment for a first-time home buyer?

Depends on housing and financial market. In current financial market, a down payment of 25% purchase price is a big help in obtaining a good mortgage.

Will the market for first time home-buyers make a comeback in 2015?

It is making a comeback in most areas in mid-2015.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

As a conservative, I recommend reducing and eliminating many excessive regulations on zoning, financing, etc., for new residences to enable housing markets to function more efficiently.

Arthur Cox

Associate Professor of Finance and Director of the Center for Real Estate Education at University of Northern Iowa, College of Business Administration
Arthur Cox
What should first-time home buyers consider when choosing a neighborhood?

Certainly the style and amenities of a particular home are the preference of the buyer. With that in mind, a first-time homebuyer should probably take the perspective that they won't live in that particular house forever. That means resale is an important consideration, to the point that the buyers should think about forgoing a desired feature or amenity if having it would cause reselling the home to be more difficult. First-time homebuyers, as well as any buyer for that matter, should investigate trends in neighborhoods they are considering. As much as possible, a buyer should educate themselves as to whether or not a neighborhood is improving, stable, or deteriorating.

How do you know that you are financially ready to buy your first home?

This will be somewhat dependent on the degree of risk aversion of the buyer. I would recommend a first-time homebuyer to have a fairly detailed budget that not only covered all necessary expenses but contained some unspent income every month to allow for unexpected expenses that invariably occur with homeownership. This may be especially the case for first-time homebuyers because they are probably not buying new construction and as a result face greater uncertainty regarding repairs and maintenance. The buyer should be comfortable with their budget and should not rely on simply whether or not they would be approved for a loan. It may be the case a loan would be approved but the family’s spending habits may be such that they could find themselves living paycheck to paycheck.

What do you recommend as the minimum down payment for a first-time home buyer?

I like to see 20% as a general rule. The reason for this is the buyers are able to avoid mortgage insurance costs. This is not a hard and fast rule though and is affected not only by the buyers’ own financial situation but also the dynamics of the market in which they are buying. For example, in very expensive markets, accumulating a 20% down payment may be very difficult if not impossible. Understanding the increased risk of a low down payment a family may still wish to make a purchase in a market with rising values.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

Affordability is one of those nebulous concepts. By saying to effectively increase home affordability implies that it isn't at this point, or that somehow it is more desirable for homes to be more affordable in the sense of a greater percentage of families being homeowners versus renters. It is not necessarily the case, despite a general feeling that owning a home is part of the American dream that home ownership is always a good thing. I'm currently working on a research study that examines the rent versus buy conundrum. It appears there are situations where a family may be better off renting compared to owning. That said, I believe a strong economy is the best means for achieving affordability, rather than trying to manipulate housing markets themselves.

William R. Emmons

Senior Economic Advisor in the Center for Household Financial Stability at Federal Reserve Bank of St. Louis
William R. Emmons
How do you know that you are financially ready to buy your first home?

We suggest that a first-time homebuyer should have adequate liquidity (emergency savings), some diversification of assets (including financial assets) and manageable debt (relative to income and assets) after purchasing a home. If you can’t do that, you’re not financially ready.

What do you recommend as the minimum down payment for a first-time home buyer?

The pre-housing boom standard of 20 percent still seems prudent and reasonable.

Will the market for first time home-buyers make a comeback in 2015?

Yes, there has been and I believe there will continue to be an increase in the number of first-time homebuyers this year. The economic recovery and continued availability of financing will support the housing market.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

It’s important to focus on affordability of housing overall, not just for homebuyers. One way to do this would be to shift some of the tax and other subsidies currently directed toward owner-occupied single-family housing toward multi-family units, both rental and owner-occupied.

Michael M. Sandez

Professor of Law at Liberty University, School of Law
Michael M. Sandez
What should first-time home buyers consider when choosing a neighborhood?

Never get in over your head. Shop for houses/condos/townhouses in the value range that you can afford. Thus, the first factor to consider is price. Then, consider the character of the neighborhood -- condition of houses, landscapes, vehicles, and crime/safety. Another factor to consider is the extent of public amenities -- schools, libraries, parks, etc. Proximity to particular locations like work, public transportation, main thoroughfares, and shopping is another factor one may consider important.

How do you know that you are financially ready to buy your first home?

First-time home buyers will most likely finance the purchase. These buyers must be educated as to what lenders will expect of them. Further, buyers must accept that lenders set the criteria and borrowers must conform. Accordingly, buyers must adapt their lifestyle and spending habits that enable them to stay within the debt-to-income ratios established by lenders. First time buyers should consult with a real estate agent, mortgage broker, or bank loan officer to discuss the buyer's circumstances regarding income and debts and daily living costs.

What do you recommend as the minimum down payment for a first-time home buyer?

Since most people use bank financing for the purchase of their homes, the minimum down payment is driven by lenders. I think it is best to work within the parameters set by the lender. Seller financing may permit more flexibility in the down payment amount and other loan terms, but first time home buyers must still exercise discipline to save as much money as possible so that they can pay at least 20% down at the time of purchase. The higher the down payment, the lower the amount of the loan payment.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

In my opinion, federal, state, and local policymakers ought to step back and be less involved in the housing market. According to a report by reporters, the affordable housing policy in the city of San Diego results in a higher cost per square foot (the report is a few years old now). Municipal policies that impose greater costs on lenders when borrowers default and abandon the home will result in higher loan costs that will be passed on to future borrowers (this type of local ordinance has been enacted in approximately 200 municipalities or more). These are just two examples of how government involvement in policies related to housing work against the general economic well-being of communities. While government might provide some level of a safety net for the truly needy, there is no constitutional right to housing. Individuals make choices in life that make it difficult, if not impossible, for them to buy a house. It is bad public policy for government to spread the cost of those individuals' choices across the taxpaying population.

Ivan J. Miestchovich

Director of the Institute for Economic Development and Real Estate Research at University of New Orleans
Ivan J. Miestchovich
What should first-time home buyers consider when choosing a neighborhood?
  • Depends on situation. If children are present or planned for future, then schools become an important consideration. History of price stability and appreciation should be considered as well.
  • Crime rates and type and direction of change; is it getting better or worse? Whether there are signs of outside investment by private investors and public sector commitment to improvements and public safety.
  • Proximity to work, shopping, entertainment, healthcare and other services necessary to buyer.
How do you know that you are financially ready to buy your first home?

When you can confidently expect your monthly housing expenses to stay within 40-45% of gross monthly household income and being realistic about your estimates and expectations about future earnings.

Also when other credit obligations are under control, particularly credit card and student loan debt.

What do you recommend as the minimum down payment for a first-time home buyer?

20% if at all possible. Helps to build equity faster and reduce risk of going upside down on loan.

Will the market for first time home-buyers make a comeback in 2015?

Depends on consumer confidence and ability of economy to create more and better paying jobs.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

With interest rate as low as they are, new programs are not the answer. Less regulatory burden on community banks would be a good place to start.

Anthony Flint

Fellow and Director of Public Affairs at the Lincoln Institute of Land Policy
Anthony Flint
What should first-time home buyers consider when choosing a neighborhood?

To cut expenses, consider whether the location allows walking to school, parks, and the grocery store. It saves money not to have to jump in a car for every activity, it's good exercise, and it's good for the environment.

How do you know that you are financially ready to buy your first home?

The monthly mortgage payment will not only include principle and interest, but typically, home insurance and property tax, in escrow. After the 2008 meltdown, getting a loan is tougher, so you'll need to have good credit for starters.

What do you recommend as the minimum down payment for a first-time home buyer?

Be prepared to set down 20 percent of the purchase price. It's a good rule of thumb generally, and these days it's most likely what the bank will require.

Will the market for first time home-buyers make a comeback in 2015?

Recent reports indicate robust conditions in the housing markets, though again, it depends on the region of the country. California, the Southwest, and Florida had a longer way to come back, and consumers should be cautious about far-flung ex-urban development.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

There are a number of policies encouraging permanently affordable housing. One interesting approach is the Community Land Trust, where the buyer purchases the home but not the land it sits on. These and other shared-equity homeownership arrangements could be encouraged through modest changes in FHA rules.

Clifford Rossi

Professor of the Practice & Executive-in-Residence at University of Maryland, Robert H. Smith School of Business
Clifford Rossi
What should first-time home buyers consider when choosing a neighborhood?

My suggestion in choosing a neighborhood is to do so with the intent of seeing yourself and your family living there for a number of years. Selling a home comes with a number of costs that you do not have as a renter so you want to be sure you plan on living in your new home for some time. Do your homework on commuting time to work and daycare centers, schools, shopping, other amenities and other aspects of your lifestyle. At the same time, make sure you are aware of any undesirable aspects of the area that pose a risk to the health and welfare of your family. For example, if the house faces a busy street, make sure you visit the house during a time when traffic patterns are normal to get a better sense of how it will be when you live there. Ultimately, where you live is a very personal choice and while real estate professionals will help you through this process, you must spend the time doing your own due diligence in selecting your home.

How do you know that you are financially ready to buy your first home?

When thinking about whether you are ready to buy a house, think like a mortgage underwriter. That is when you are considered by a lender for a mortgage, they will assess the 3C's of underwriting; credit, capacity and collateral.

First, check on your credit and see if there are any issues with your credit history that need to be addressed. Second, make sure you have the capacity from an income and asset standpoint to make your mortgage. There are a number of websites that provide debt-to-income calculators. Understanding how much mortgage and nonmortgage debt per month you can carry without being overburdened or stressed is critical to the homeownership decision. Comparing your monthly mortgage debt to your current rent payment is one yardstick to help size up your debt load.

In addition, you should try and set aside a contingency fund; what lenders call asset reserves for unforeseen events. Lastly, have you saved up for a downpayment and any associated closing costs on the house? The good news is that there are a number of conventional and FHA loan programs that allow as low as 3% of your home's value as a downpayment, and if you are a military veteran, the VA has no downpayment mortgages available.

What do you recommend as the minimum down payment for a first-time home buyer?

Determining how much money to put down on a house depends on several factors. For first-time homebuyers, a downpayment between 3-5% is a good target. Having an equity stake in the home helps you in the loan qualification process and the good news is with Fannie Mae and Freddie Mac's programs for first-time homebuyers, along with FHA's low downpayment programs and VA loans, first-time homebuyers have more options than they have had in years to obtain mortgage financing.

Will the market for first time home-buyers make a comeback in 2015?

Fannie Mae and Freddie Mac loan programs for first-time homebuyers that have been put in place over the last year will boost access to credit for first-time homebuyers and hence help put more of these borrowers into homes. This segment of mortgage borrowers is one of the most critical for maintaining a healthy housing market. Millennials make up a good share of this market and due to a variety of negative headwinds, such as lackluster job opportunities and wage growth, student debt and tight credit conditions, the percentage of first-time homebuyers has fallen short of historical averages in recent years. However, efforts to expand credit to first-time homebuyers in the last year should measurably improve this segment of the market.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

Making sure first-time homebuyers have access to credit programs is an important priority for policymakers. The federal agency responsible for overseeing Fannie Mae and Freddie Mac, for example, worked closely with these companies to create new loan programs specifically tailored toward affordable housing. Moreover, reductions in FHA mortgage insurance premiums have meant that obtaining an FHA mortgage is more affordable than it once was. Beyond creating loan programs that recognize that more first-time homebuyers can experience the satisfaction and pride that owning a home brings, policymakers must ensure the costs of homeownership; e.g., interest rates, fees and other expenses do not price borrowers out of the market while at the same time making sure that those that are granted credit are qualified.

Timothy Riddiough

Professor in the Department of Real Estate and Urban Land Economics at University of Wisconsin-Madison, School of Business
Timothy Riddiough
What should first-time home buyers consider when choosing a neighborhood?

I will assume young families as the most probable first-time homebuyer. Schools of course, and location to other amenities you value. If an existing neighborhood, are houses turning over and other young families moving in? Don’t buy the most expensive house in the neighborhood; buy a smaller house in a better neighborhood. Houses are like marriage – you marry for love, but a little money and a good future is also a good thing. Buy the house you love, but think about how the house will appreciate in value. This depends crucially on neighborhood and general location.

How do you know that you are financially ready to buy your first home?

Like certain other things in life, you’ll know when you feel it. You should feel ready to move on from your current housing situation. Your current place is too small, too dated, too... You will have talked about it with your partner and other confidants, and in the end it’s a matter of taking the leap. It should feel like a stretch financially, but doable. Keep in mind that houses require maintenance – so plan for that.

What do you recommend as the minimum down payment for a first-time home buyer?

As much as you can afford to get as close to 20 percent down as possible. You want to avoid paying for mortgage insurance if possible, and if you end up putting less than 20 percent down, do try to get to a 20 percent equity position as soon as you can. Beyond a 20 percent down downpayment is a personal call. Mortgage interest deduction is still available, so why not take advantage of it and diversify your investments.

Will the market for first time home-buyers make a comeback in 2015?

Yes! The worst is over in most locations and bidding wars are starting to happen. Policymakers now finally understand the importance of a healthy and robust first-time homebuyer market. This is a great time to buy – there is still a lot of upside in most markets, and downside risk is relatively low.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

Reduce hassles in obtaining a mortgage. As is inevitably the case, policymakers and the banking industry have overreacted to the events of almost a decade ago now, making it very, very difficult to get mortgage financing. Everyone knows what responsible underwriting guidelines look like; that is not the hard part. The hard part is for policymakers and bankers to get over their risk aversion and loss aversion when it comes to house prices. House prices have bottomed out and the U.S. economy appears on firm footing, so it’s time to look forward and not backward when it comes to developing policies that encourage home ownership.

Christian L. Redfearn

Borstein Family Endowed Professor of Real Estate Price and Director of Graduate Programs in Real Estate at University of Southern California, School of Public Policy
Christian L. Redfearn
What should first-time home buyers consider when choosing a neighborhood?

The first thing homebuyers should consider is whether or not they want to live there. During the housing bubble, we heard homes discussed as “the third earner” in a household. Homes went from being viewed as a store of wealth over time to being viewed as a source of wealth creation. Of course, when the housing bubble broke, these households found themselves with homes that were burdens. The housing bubble and bust obscured the other side of housing, which is its role as a residence: providing shelter and access to local amenities. Ultimately, much of the value of a house comes from these. While local house prices went up and down, our neighborhood didn’t change much. On paper, our equity went up and down, but most of what we enjoy about our house remained unchanged throughout the bubble and bust years.

How do you know that you are financially ready to buy your first home?

Obviously, sufficient income and enough savings to put together a down payment are important. But equally important is being confident that you’re likely to stay put in one area for a while. This doesn’t mean that one has to keep the same job, but rather that you’re confident that the labor market will keep providing jobs that fit you. The modern economy means that many households will change jobs frequently. But, buying a house is expensive; the transaction itself is also very expensive. It would be prohibitively expensive to buy and sell a house frequently to match every new job.

What do you recommend as the minimum down payment for a first-time home buyer?

The traditional down payment for purchasing a house has been 20%. With an amortizing loan in place, this cushion of equity meant that the house could withstand typical volatility and still be in the black. In high-cost areas, this 20% down payment represents a very large amount of money. FHA and other programs exist to allow households to buy a home with a smaller down payment. I don’t know if there’s a “right” down payment amount. If you are happy living in your house and have an income that can service the debt over time, then house prices can rise and fall in the short run and have little effect on quality of life.

Will the market for first time home-buyers make a comeback in 2015?

Where? Which neighborhood? There is an awful lot of variation in housing markets these days. In a lot of the first-tier markets, house prices have surpassed peak pricing during the bubble years. Getting a mortgage is easy if you have great credit and an established track record. But, many first time home buyers have neither and for these households, getting a loan can be tough. In expensive housing markets, expensive debt and big down payments make it difficult for first-time buyers. One thing that can change at this point in the cycle is that underwriting standards could slacken a bit. As mortgage lenders get more confident in the job market, they may broaden their definition of a good credit risk. This would mean that households that have good -- but not great -- credit might get easier access to debt and make it easier for them to buy first home.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

There are several levers that policymakers could pull to help first-time homebuyers. Think about the constraints that homeowners face: down payment requirements, high credit scores, stable work histories, and high-cost housing markets. The first three of these arise because of concerns that lenders have about repayment. Anything that lowers the risk to lenders will lower the cost of debt for homebuyers. There are a host of programs that offer down payment assistance, silent second mortgages, mortgage guarantees, etc. In the long-run, however, the cost of housing is a function of supply and demand. The most effective way of lowering housing costs is to allow more supply to be built. In many of the housing markets that are the least affordable, demand-side subsidies may have little effect in aggregate. It’s often the places that “need” the most help providing opportunities for first-time home buyers that make homebuilding the most difficult.

G. Stacy Sirmans

Department Chair and Kenneth G. Bacheller Professor of Real Estate at Florida State University, College of Business
G. Stacy Sirmans
What should first-time home buyers consider when choosing a neighborhood?

A typical first consideration for any homebuyer is the school district. First-time buyers are usually younger and may not have children but that doesn’t mean their house value won’t be impacted.

Another consideration is the percentage of renters in a neighborhood. The first-time buyer would want to choose a neighborhood that is totally or a high percentage owner-occupied.

And of course, you don’t want to overbuy for the neighborhood. You never want to buy the biggest house in the neighborhood because your home value will be affected by the houses surrounding you. You want to buy the smallest house in the neighborhood.

How do you know that you are financially ready to buy your first home?

First, you should be secure that you can make the monthly payment with the income you have. Also, remember that the total monthly payment will likely not be just principal and interest but will also include escrow for property taxes and insurance. Thus you want to be comfortable making the total payment.

Before you buy a home you should first build up a savings account. When you buy the house, it’s yours. You’ll be responsible for the maintenance. No more calling the landlord; you are your own landlord.

Financial readiness can also be affected by the rent ratio in your area. With low mortgage interest rates and a high rent ratio it might actually be cheaper to own than to rent (in terms of the mortgage payment relative to the rent payment).

What do you recommend as the minimum down payment for a first-time home buyer?

Down payment is not as important as the payment-to-income ratio. Don’t create a housing cost burden for yourself by buying a house such that your payment is a problem. The major impediment for first-time buyers is the down payment. Some buyers turn to loans such as FHA or VA where the down payment is smaller than the down payment for a conventional loan. Whether you make a large or a small down payment, that should be in the context of keeping your monthly payment manageable.

Will the market for first time home-buyers make a comeback in 2015?

Well, we’re half way through 2015 so a comeback will have to happen quickly. I don’t see much happening on that front since I don’t see the job market improving substantially over the next six months. College graduates are loaded up with student loan debt, etc., so unless that person can secure a job that pays enough to support student and mortgage loans payments there is no chance of buying real estate. Delivering pizzas until the market improves is not going to cut it.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

We already have interest and property tax deductions at the federal level. Some form of down payment assistance could be beneficial. Some form of property tax abatement could be helpful at the local level.

Some of the component costs of buying a home, such as title insurance, are state-regulated. States could look at making some of the items more affordable.

Mark Lane

Associate Professor of Finance at Old Dominion University
Mark Lane
What should first-time home buyers consider when choosing a neighborhood?

There are several items to consider with regards to the neighborhood when making your buying decision. Buyers should pay careful attention to the schools in the area. Parents with children carefully evaluate the schools and they want their children to go to good schools. Being in a good school district also makes it easier to sell the home later. You should pay careful attention to the safety of the area. Many cities provide access to the crime information for a neighborhood, which makes it easier for you to evaluate crime levels. If you notice that the prices in a neighborhood are lower than surrounding areas, elevated amounts of crime may be one of the causes. Finally, you should consider the location. How far is the neighborhood from the places that you visit regularly, like your work, shopping, etc.?

How do you know that you are financially ready to buy your first home?

There are many online sites that help you with determining how much that you can afford to spend on a home (e.g., zillow.com). The lenders and government agencies also have financial guidelines to help you decide your price range. Understand that buying a home is a major financial commitment. Even if you have carefully planned out your budget, there will be expenses related to owning a house that are unexpected. Some of the unexpected expenses can be very large, like replacing or repairing your A/C system. Also, since you own it, many people spend money on improvements that they wouldn’t do normally (e.g., wood floors, landscaping, etc.). If you have a solid history of paying all of your bills with money left over and you have saved money for the downpayment plus a reserve fund, you are probably ready for home ownership. I encourage you to make certain that you are ready. If you aren’t able to pay your home payments, your home could be foreclosed upon and you would destroy your credit.

What do you recommend as the minimum down payment for a first-time home buyer?

There are government programs that allow people to purchase a home with a 3.5% downpayment. I personally don’t recommend that people use these programs. Keep in mind that you lose 7-10% of the sales price to fees and taxes when you sell your home. So, if you purchase a $100,000 home, you will only get $90,000 - $93,000 when you sell it, if prices haven’t changed. If you only put 3.5% down ($3,500) then you owe $100,000 - $3,500 = $96,500 when you first purchase the home. If you took a 30-year loan at a 4.5% interest rate, it would take you until month 47 to pay the loan down below $90,000. This means that you couldn’t sell your home, without taking money out of your pocket, for almost 4 years after you purchase the home. Also, if home prices decline, you may owe more than the home is worth with only a small decline in home prices. Basically, a small downpayment subjects the buyer to more risk. I recommend a 10% or larger downpayment. I know that it is difficult for most people to save that much, but a 10% downpayment reduces the cost of the PMI (a 20% downpayment eliminates it) and saves you money.

Will the market for first time home-buyers make a comeback in 2015?

The first-time home buyer is facing many challenges. First, income levels for first-time home buyers have been stagnant for many years after adjusting for inflation. The median income level is approximately the same as in 1990, but home prices have increased in most markets. The Case-Shiller 20-City index shows that prices are up 79% since January 2000. This makes it more difficult for people to afford a home. Second, many first-time home buyers recently graduated college and have large student loan balances. The payments on these student loans consume much of the income needed for housing payments. Finally, most of the construction of new properties is in multi-family properties. There were 685,000 single-family housing units started in June of 2015, whereas there were around 1.8 million units started per month in 2005. Keep in mind that few of these units are targeted at the first-time buyer. So, we have people who haven’t seen their incomes increase since 1990, with elevated debt levels, trying to buy a limited number of houses that are increasing in price. This is not a good combination. The younger generation also seems to be more comfortable renting rather than owning. The one positive is that interest rates are very near their historical lows, which makes purchasing a home more affordable. For these reasons, I see at best slight-growth in the first-time buyer segment.

How can federal, state and local policymakers responsibly and effectively increase home affordability, particularly for first time homebuyers?

The first thing that everyone should understand is that every policy or program has consequences. The reason that many of our government programs exist is that people pay attention to the short-term benefit but ignore the consequences (which are often hidden or delayed).

“The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed.” - Henry Hazlitt

Many of these programs may be well intentioned, but they may not be sufficiently audited and monitored to gauge their effectiveness. Suppose that a government program pays the entire downpayment on a home for a single mom and her child because she can’t save enough on her own. Now the woman and her child have a home that they couldn’t afford on their own. What happens when this woman has an unexpected repair on the home, like a water heater ($1,000) or an A/C system ($3,000 - $10,000)? If she didn’t have enough money for a downpayment on the home, she likely doesn’t have enough for the repairs and upkeep on the home. So, this program got the woman into a home, but she may end up destroying her credit and losing it because of unplanned expenses.

Any government program that wants to help with housing affordability should fully consider all of the impacts of the program. Being able to afford a home is a function of the person’s income and expenses as well as the cost of the property. Programs that enabled people to increase their incomes (e.g., training) and manage their expenses would have positive impacts. We have a proposal to do research on this topic for the state of Virginia. We will have more suggestions over the next two years.

Methodology

To determine the most favorable housing markets for first-time buyers, WalletHub assessed the real-estate landscape within 300 U.S. cities. We did so by examining three key dimensions: 1) Housing Affordability, 2) Real-Estate Market and 3) Living Environment. We then compiled a list of 18 relevant metrics, which are listed below with their corresponding weights. Please note that, for our sample, “city” refers to city proper and excludes surrounding metro areas.

For this particular study, we categorized the cities based on the following population sizes:

  • Large cities: More than 300,000 people
  • Midsize cities: 150,000 to 300,000 people
  • Small cities: Fewer than 150,000 people

Housing Affordability – Total Weight: 5

  • Median Household Annual Income (Adjusted for Cost of Living): Full Weight
  • Housing Costs (Median Household Annual Income Divided by Median House Price): Double Weight
  • Consumer Non-Housing Debt (Divided by Median Household Annual Income): Half Weight
  • Real-Estate Tax Rate: Full Weight

Real-Estate Market – Total Weight: 5

  • Rent-to-Price-Ratio: Double Weight
  • Sale-to-List Price Ratio: Full Weight
  • Median Home-Price Appreciation: Double Weight
  • Average Home Square Footage: Full Weight
  • Foreclosure Rate: Half* Weight

Living Environment – Total Weight: 5

 
Sources: Data used to create these rankings were obtained from the U.S. Census Bureau, the Council for Community and Economic Research, Zillow, the Federal Bureau of Investigation, Experian, CoreLogic and WalletHub research.

Author

User
Richie Bernardo is a personal finance writer at WalletHub. He graduated with a Bachelor of Journalism and a minor in business from the University of Missouri-Columbia. Previously, he was a…
2082 Wallet Points

Discussion