According to the California Association of Realtors public website, 35.5% of residential home sales in 2021 were first-time homebuyers, down from 38.4% in 2020, however this 35.5% was higher than any year from 2013 to 2019.
A first-time homebuyer is anyone who has not owned a home in the past four tax years.
These first-time buyers paid 15% to 20% more on the home price in 2021 than they would have paid in 2019, but thanks to the Fed stimulus program to fight the economic challenges caused by the pandemic, their fixed rate mortgages were 25% lower than they would have been in 2019.
Most first-time home buyers have small down payments and finance 95% to 100% of the sales price and 99.5% of every mortgage done in 2021 were historically low fixed rate mortgages and every one of these first-time homebuyers had to qualify with decent credit and enough provable and stable income to afford the payment – including taxes and insurance.
There haven’t been any Wall Street mortgage shenanigans for 12 years in the mortgage business. These buyers didn’t get in with volatile teaser rate ARM loans or subprime mortgages. None of these first-time homebuyers have been able to get stated income loans, aka liar loans, and almost all the buyers have skin in the game with 3% to 10% down payments from savings, 401(k) loans or gift funds from parents.
The California Housing Finance Agency program, which allows buyers who make less than $163,000 per year to purchase a home with no down payment, has strict underwriting guidelines for income and requires a minimum FICO score of 640. This has been popular at my office for our buyers who don’t have the $20,000 to $25,000 required to buy a $500,000 home in Solano County.
Lots of these first-time homebuyers got in by the skin of their teeth and feel stretched, however they now have a fixed rate housing payment and are protected against rental inflation while wages continue to rise. There is no bubble, however, if mortgage rates go up to 4.25% from the current national average of 3.15%, in which case the market may shift from a seller’s market to a buyer’s market and values could drop a bit in 2023 but holy cow, very few families are going to let their house go into foreclosure and rent at the same or higher monthly cost of their current fixed rate house payment.
Now may be the perfect time to list your house with a local Realtor and sell your house to a first-time homebuyer, maybe even sell to one of your children, and move up to your dream home or down to your retirement home.
