Real estate: 3 challenges facing first-time homebuyers this spring

First-time homebuyer Rachael Waldburger started her search for a house in March with the hope she and her husband would quickly find a property that met their goals. Nothing fancy, just a home in good shape with three bedrooms and a couple of acres of land, the Wisconsin middle-school teacher said.

While the couple eventually found a house, she said the experience was frustrating. There wasn’t much available in their price range in central Wisconsin, with homes either inexpensive fixer-uppers – in need of expensive work – or out of their price range. Properties were snapped up quickly, with some going into contract before the couple had a chance to look.

“We had to compromise,” she notes. “There was nothing in the country within our price range, so we settled on something in the city. The house is on a double lot so we have a nice sized yard, but nothing close to what my husband was hoping for.”

Planning ahead can make the homebuying process a lot smoother.
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Waldburger isn’t alone. This spring may prove challenging for some first-time homebuyers, who typically have fewer assets than current homeowners, who have built up equity in their homes. Inventory remains tight in many regions, as Waldburger discovered, and median home prices are unaffordable for average wage earners in 70% of the country, according to ATTOM Data Solutions, which provides real estate and property data.

U.S. homes reached a pricey milestone in March when the median home listing price jumped 7% to $300,000 for the first time ever, said in April.

Bright spots

Even so, there are some bright spots for first-time buyers. The 30-year fixed mortgage rate has eased to 4.42%, according to the Mortgage Bankers Association. That helps with affordability since a relatively lower rate can shave the interest portion of a mortgage payment. And inventory has loosened up slightly from last year, although it remains tight compared with historic levels, says Jeff Tucker, an analyst with Zillow.

“This winter there was a bit of a slowdown in the pressure on the market, but that is relative to the last several years of really fierce competition,” Tucker says. “That doesn’t mean home prices have dropped into a more affordable range – far from that. It’s that the growth has slowed down and leveled off by our metrics.”

Here are three trends that experts say could affect first-time homebuyers this spring.

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Home prices

The spring home-buying market “will probably be a continuation of what we’ve seen,” says Issi Romem, chief economist at housing-data site Trulia. “Prices are still high, and may still keep going up.”

That being said, homebuyers will find significant differences in affordability depending on which city or county they live in, according to ATTOM’s analysis.

Even though prices are still relatively high, first-time buyers may see some relief, says Sean Black, the co-founder and CEO of Knock, which helps homeowners buy and sell their properties. His company’s research indicates that 75% of current listings will sell below their list prices in the second quarter, which is April through June.

“People are negotiating more than they have been, and buyers should try to factor that in,” Black says.

His advice: Search slightly above your price range, and negotiate for concessions, such as asking sellers to pay for home repairs or closing costs.

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Fewer homes are available to buyers than in previous years, partly because of a drop-off in new home construction following the recession. By Zillow’s calculation, there would be 6.3 million more homes in the U.S. today if home building had kept up at the same pace during the past several years.

Early 2019 has brought a good news-bad news situation for buyers, as has found that overall inventory levels rose in March. Yet entry-level inventory is shrinking, with the number of for-sale houses below $200,000 declining by 9% in March.

The lack of available housing can lead to bidding wars, which can be “demoralizing” for first-time homebuyers, notes Knock’s Black. Financial preparation is key for buyers, especially in expensive regions with low inventory.

“Have as much in savings as you can,” Black advises. “If you can get fully approved for a mortgage, then you can feel better in making an offer.”

Securing a loan

Lastly, financing can still prove to be a hurdle for some first-time buyers. The Federal Housing Administration, which insures government-backed loans, said in March that it is tightening its rules on high-risk mortgages. The reason? The FHA said it has grown concerned about a decrease in average borrower credit scores.

That could make it tougher for some first-timer buyers to secure a loan, experts say. Building up your credit score before applying for a mortgage can increase your chances not only of securing a loan, but getting a lower rate.

As Trulia’s Romem notes, “You still need good credit to get many types of loans.”