First-time buyers face a brutal market

James Wang and Daniel Souza at their apartment in San Francisco, California on November 3, 2022. (Jed Jacobsohn / The New York Times)

In the summer of 2020, Alexandra Elmer and her husband, Matthew, began looking for their first home. They thought their wish list was realistic: four bedrooms, two bathrooms, a courtyard, and central air conditioning.

It would have been a major step up from renting their dilapidated Cape Cod style home with damaged hardwood floors, small closets, and a cramped bathroom in a city about 15 minutes from downtown Philadelphia.

With about $ 70,000 for a down payment, they thought they were in a good position to purchase a home in Bucks County, Pennsylvania, close to Matthew Elmer’s family and business. But at every turn, they were surpassed, even on a home that received 29 more offers and even after increasing the budget to $ 650,000 from $ 350,000.

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But as interest rates soared and house prices soared, 28-year-old Alexandra Elmer saw her dream slip away. The math no longer worked; the monthly mortgage payments were simply too high.

“It seems like it’s never our time,” said Alexandra Elmer, who works in private aviation, and had to delay her marriage in 2020 due to the pandemic. “I am stuck on the starting line and other people have been able to progress. I know we’ll get there one day, but it’s hard to look to the future ”.

For most young Americans, access to home ownership, a rite of passage for many adults, has been blocked by forces beyond their control. They have been competing in a market unlike any other, one defined by the largest rise in house prices in modern history, only mitigated by the steepest rise in home mortgage rates in recent decades.

As first-time buyers rush to pool money for down payments and closing costs, they are competing in a market with anemic inventory against cash-filled investors and repeat buyers.

First-time buyers account for the smallest share of the market in the 41 years that the National Association of Realtors monitored that data. In the year from July 2021 to June 2022, first-time buyers accounted for only 26% of home buyers. They normally represent around 40% of the market. They’ve been replaced by repeat shoppers who were older, richer, and whiter than they’ve been in the past few decades, according to a recent trade association survey.

White shopper share jumped to 88% during the survey year, representing the largest share of white shoppers since 1997. Black shopper share dropped to 3% from 6% and Asian / Pacific Island shoppers they fell to 2% from 6% over the previous survey year.

The average age of all buyers was 53, the oldest since 1981, when the association first conducted its survey.

The more years a person spends on rent, the fewer years they have to build an equity in a home and ultimately pass it on to the next generation. A renter is also forever at the mercy of the changing rental market, with little control over what the costs will be from one year to the next.

“The combination of that accumulation of capital, albeit modest, and the fact that your income generally tends to rise but your house payments remain more or less the same, is really a huge engine of wealth creation in the long run. “said Janneke Ratcliffe, vice president of the center for housing finance policy at the Urban Institute. “So the sooner you start that journey, the more you will accumulate the wealth benefits of home ownership.”

“A double hit”

Having given up on house hunting, the Elmers are now looking to rent a nicer place in Bucks County, closer to family and a shorter commute to work for Matthew Elmer, 32. The new apartment will cost them an additional $ 1,000 per month in rent, impacting their ability to save.

It’s another breakthrough and disappointment in 2 1/2 years of tough times for potential homebuyers. First there were the rampant bidding wars, which left buyers outrunning each other to present the brightest offer: $ 50,000 plus asking? Try $ 100,000 and no inspection. Rising interest rates have thrown cold water on these strategies, but even as the lines outside the open doors evaporate, prices haven’t dropped enough to reduce the pain of higher rates.

About 54% of American renters don’t believe they’ll ever be able to afford to buy a home, according to an October Credit Karma survey.

“There is a double whammy right now. It’s not just interest rates, it’s a broader macroeconomy, ”said Colleen McCreary, Credit Karma’s chief people officer and consumer advocate. “This is the idea that things are not stable economically, and I don’t know when that stability will return.”

Unsuccessful shoppers are left to grapple with the consequences, from small disappointments, like wondering if you’ve wasted a year of Sundays on unsuccessful open houses, to existential ones, like delaying when or if you have children until you know where you are going to live. In correspondence with the New York Times, dozens of shoppers expressed deep feelings of frustration with the dormant lives. They feel free and uncertain, stuck waiting for the next stage in life to begin.

Maria Pizano spent a decade saving around $ 40,000 on a down payment while paying off her student loans. About three years ago, when she was finally ready to watch, her earnings were meager in her price range — about $ 350,000 for a one-bedroom condo — hers in San Diego. There were some palatable apartments out there, but they were in neighborhoods where she was concerned about her safety, so she kept looking. But over the past couple of years, as prices have soared, she Pizano noted that she had been completely excluded from the San Diego market.

“I have a masters degree, I have a college education and I am still literally at the price of anything,” said Pizano, 37, a marriage and family therapist.

So Pizano, originally from the Los Angeles area, has headed north and is considering moving to Oregon or Washington, where the weather is cooler, and hopes to find a home that fits her budget.

He’s not familiar with the Pacific Northwest, but he’s already envisioning a life in a place where he can continue working remotely and possibly buy a $ 400,000 or $ 500,000 three-bedroom home.

She is not alone. Homebuyers averaged 50 miles in search of a home in the year of the National Association of Realtors survey, up from 15 miles in previous years.

Pizano doesn’t want to move to a new city alone. He then tried to persuade her reluctant cohabiting boyfriend and her mother and sister, who both live outside of Los Angeles, to move in with her.

“They are starting to open up to the idea,” he said. “It’s such a big change and it would be such a big move from the rest of our family, so it was a really tough decision.”

“An insane amount of money”

Buyers with high budgets and significant down payments are also struggling to compete against an all-cash competition. About 27% of repeat buyers paid for their homes in cash, while only 3% of first-time buyers could make such offers in the year from July 2021 to June 2022, according to the National Association of Realtors.

In San Francisco, Daniel Souza and his partner, James Wang, are willing to make a down payment of about $ 300,000 for a two-bedroom apartment in San Francisco, but even that wasn’t enough. The couple lost eight bidding wars in the 15 months they shopped.

“What drives me crazy is that our down payment is essentially the price of a house I grew up in in Merced County, central California, said Souza, 32, an environmental planner.

Their budget was initially $ 1.2 million, eventually rising to $ 1.7 million. But now that interest rates have risen, their budget has dropped to $ 1.4 million, all while watching friends with huge stock option packages eradicate homes more easily.

“You’re competing against people who only have an insane amount of money,” Souza said, noting that he and Wang sometimes made an equal bid but lost because they were in cash.

“Our Twitter friends just got a huge amount of money,” he said, referring to the company’s recent sale to Elon Musk which resulted in a windfall for shareholders. “I don’t get it in my compensation package.”

But overall, tech stocks are down, which baffled Wang, 35, a tech data analyst. He plans to eventually sell some of his tech stock to finance the cash advance. But he has spent the past few months watching his portfolio’s value decline at the same time as interest rates rise. He observes how money he could have put into a house months ago when interest rates were low, now he’s sitting in an account that is losing value.

“This was stressful and anxious,” he said.

The last year and a half of endless open houses has worn the couple out. But they see no other alternative.

Nearby cities in the Bay Area are no longer cheap, and San Francisco is where they consider home.

“Our lives are in San Francisco,” Souza said. “For me, growing up as a gay boy in central California means a lot to be able to live in some neighborhoods of San Francisco.”

Fingers crossed

For Elizabeth and William Stebner, the grueling house hunt may finally be over, but the anxiety persists and the process has been anything but joyful.

Buying a home “was something I was looking forward to with enthusiasm,” said Elizabeth Stebner. “It should be an exciting process, a happy process.” Instead, it was marked by stress and uncertainty.

The couple has a $ 727,500 contract for a two-bedroom condo in the borough of New York City, Queens. The deal is expected to close in December, but they are awaiting the bank’s valuation and fear that if it valued for less than what they offered, the deal could fail. They have already seen the estimated monthly payments for this apartment increase since they made an offer in August. At the time, they had been pre-approved for a 4.75% mortgage, but by the time they struck a deal, the rates had soared to over 7.5%, increasing payments by several hundred dollars a month.

“If it goes further, then we are in the territory of: can we afford it more?” Elizabeth Stebner, 35, a senior advertising producer, said. “I don’t think we can.”

In September, the Stebners went on vacation to Italy and bought a ceramic door plate from a shop in Capri, where the couple had traveled on their honeymoon. On it are hand-painted lemons and the door number of their new apartment.

But Elizabeth Stebner is starting to wonder if she was too optimistic when she bought it.

“Are we really going to use it?” she said. “It seems unreachable.”

He will not discard the sign until he has the keys to the apartment.

© 2022 The New York Times Company

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