Ignoring reality is no way to get to the closing table. Even if the media is prone to sensationalizing the short-term outlook, the reality is that the initial financial lift is heavier right now for first-time buyers who lack the equity of current homeowners. First-timers are entering a cooler market hamstrung by high inflation, unstable mortgage rates, and a below-average housing inventory in Minnesota, particularly in the Twin Cities metro. We’re in a period of adjustment, and such times inevitably cause a few bumps in the road to homeownership. But despite some challenges, high-quality homes are still available at the right price across the state for the dedicated agent and the persistent buyer.
This doesn’t mean Realtors® should sugarcoat local market conditions or push buyers to the edge of what they can afford—it’s about conveying that it may take some creativity, patience, and flexibility to get them into their first home as we move into a slower spring than we experienced in 2022.
You can help your clients understand the importance of making a competitive offer on a home, and it starts with their financial situation. Though we aren’t seeing the frenzied bidding wars of the prior two years, agents continue to see multiple bids come in on homes, which makes financial confidence critical for shoppers. Clients should have a realistic picture of what they can afford for a down payment, what kind of earnest money they can contribute, which type of mortgage they will apply for (i.e. fixed-rate mortgage or adjustable-rate mortgage), and finding a lender to get pre-approved.
Since it’s their first real estate rodeo, these buyers will look to you, their agent, to wrangle in the homebuying process. Realtors® can help by demystifying the process, patiently answering even simple questions, and using plain language to define contract terms, inspection and appraisal processes, and other requirements so clients can be prepared to make a competitive offer fast to show the seller you mean business.
One Size Doesn’t Fit (or Finance) All
First-time buyers represented 31% of buyers in the U.S. in January, up 4% from the same period in 2022, according to NAR’s January 2023 Realtors® Consumer Confidence Index Survey. That same report shows that millennials still make up the largest share of buyers. Millennials are also more burdened by student loans than any other generation searching for a home, which can affect their payment budget. Younger buyers overwhelmingly depend on their savings for down payment funds.
No matter a client's financial situation, it’s important to look at what financing options are available to best position them for success when they fall in love with a home. For some, this could mean tapping into first-time homebuyer down payment assistance funds or specialty loan programs available in Minnesota. For others, it may mean utilizing down payment gifts from relatives; something 29% of young millennial buyers did in 2022 to purchase their first home. Financing with a higher down payment, when possible, can ease monthly payments as well. Adjustable-rate mortgages (ARMs)—interest rates that change throughout the life of a loan—can offer lower rates initially to buyers, but if the economy were to take a steeper downturn, ARMs could go higher than the fixed-year rate.
Helping your clients understand that mortgage rates don’t have to be forever can ease their minds. Refinancing a home after a few years is a legitimate option for buyers who might be squeamish about monthly payments at the current interest rate, which is subject to change week to week. Put simply, your clients are buying the house, not the mortgage rate.
Keep an Open Mind
Even though fixed-year mortgage rates have risen over the past couple of weeks, demand for homes in Minnesota remains strong. When rates are hiked, even slightly, it can take a little time for buyers to adjust their expectations. Patience will be key for first-time buyers when approaching the Minnesota spring housing market. But if inflation does peak and begins to fall—an outcome being watched closely by NAR Chief Economist Lawrence Yun—interest rates could follow suit, setting up a quicker thaw of local housing markets; more reason to help your buyers prepare for anything this spring.
Despite some affordability issues, buyers are enjoying greater negotiating power than at the height of the spring sales season last year. Nationwide, NAR experts see more sellers willing to make concessions, along with a decrease in buyers waiving inspections. Home prices in Minnesota remain high and it's not uncommon to go above the asking price. Though you may have to coach buyers to reimagine or remain flexible on their dream neighborhoods, opportunities will be there.
Keeping an open mind goes beyond the financial. First-timers giddy about getting into a home may later regret their decision if they don’t think through their long-term goals. Coach buyers to consider what they foresee being important in their lives five to ten years from now. If they have a family, will they eventually need more space? Will they actually do the work required to improve that affordable fixer-upper? Will they grow weary of the commute to work? Every consideration should be on the table as you start searching in earnest.