First-time homebuyers see now as a good time to buy despite market uncertainty

Amid cooling inflation and rising housing costs, many first-time homebuyers feel more certain about their financial situations, according to a recent study. TD Bank surveyed 1,007 Americans planning to buy their first home in 2023 to learn more about their path to purchasing a home, as well as their thoughts on preparedness for the process as housing costs fluctuate nationwide. The survey found that 54% of respondents indicate they are now better off financially than they were two years ago, and while buyers' perception of the economy and affordability continue to draw concern, rising rent may be driving homeownership interest.

First-time homebuyers maintain optimistic outlook amid market concerns

Among those looking to purchase a home for the first time in 2023, 39% believe now is a good time to buy. Many who have begun their process are also showing signs of preparedness with 48% starting to save for a down payment. Additionally, more than eight in ten (85%) respondents indicated buying a home was a good long-term investment.

Though first-time buyers are looking more optimistically toward the homebuying season, reservations remain, with a majority (69%) concerned about the economy and 64% concerned about their ability to afford a home with rising interest rates. That worry persists for six in 10 respondents when considering the ability to afford a home combined with other expenses.

Rate hikes have also fueled some good financial habits, including the 43% of participants who cited that they have started monitoring their credit report or taken steps to improve their credit score to potentially reduce interest rates for their home loans. Additionally, 48% have established a homeownership budget for their first-time home purchase this year.

Rising rent costs push homebuying interest

As you may expect, nearly two in five (38%) renters have considered delaying their home purchase and continuing to rent in 2023. Among them, 30% said the top reason for potentially delaying their homebuying plans is an inability to afford the home they want due to rising interest rates.

Interestingly, many have had the opposite reaction, seeing rising rent costs as a stimulus to forge ahead with purchasing a home. Of those survey participants who have not considered delaying their home purchase, 40% cited rising rent prices as the top reason prompting them to move forward with buying a home.

Despite interest rate levels, homeownership continues to be seen as a sustainable way to build intergenerational wealth, while providing the added benefit of shoring up a buyer's financial position over the long term. 

Buyers make lemonade out of the big lemon – rising rates

While inflation and rising rates are two factors first-time homebuyers can't control, some are rethinking their approach to provide some flexibility in the homebuying process. In fact, 59% of those looking to purchase a home this year indicate they want to pursue a fixer-upper or starter home.

More than one-third (34%) of those who plan to buy a fixer-upper or starter home are seeking a more affordable home. More than half (52%) of those planning to buy a fixer-upper or starter home cited that current market conditions impacted their decision.

Homebuyers aren't just getting creative with the type of home they're looking to purchase. They're also coming up with long-term solutions to combat the current rate environment. More than one-fourth (27%) plan to refinance when interest rates come down.

Depending on a buyer's personal financial situation, how long they expect to be in the home, and other risk-based considerations, there may be alternate mortgage options to consider in the near- and long-term when it comes to financing a home. However, only 22% of first-time homebuyers start the process of speaking with a mortgage lender in order to determine whether they qualify.

Breaking through misconceptions

While inflation, home supply, and shifting rates may present challenging barriers to homeownership, there are a few misconceptions homeowners should look to avoid as they begin the process:

• Learn about home ownership: The majority of participants (82%) agree that homeownership is important to them. It's equally important to complete your due diligence around homeownership. Understanding what you need to know better positions you to work with realtors and lenders during the process.

• Reconsider your down payment requirements: First-time homebuyers have a wealth of options when it comes to flexible lending needs, including down payments. Almost half of survey participants (44%) cited that saving money for the down payment was a barrier to purchasing a first home. Additionally, 81% of low-to-moderate-income (LMI) respondents ranked affordability of the down payment as one of the top three barriers they are concerned with facing during the homebuying process. Many lenders offer flexible down payment assistance programs, which allow borrowers to provide as little as 3% down when purchasing their first home. Among survey participants, more than one-third (35%) anticipate utilizing a down payment assistance program to buy their first home.

• Talk to a lender early: True in any market, speaking with a lender can give a first-time homebuyer a snapshot of their budget, potential closing costs, and which first-time homebuyer assistance programs they could be eligible for. This is especially true for LMI buyers. Among LMI respondents, more than eight in 10 (82%) of respondents felt confident or neutral in their financial literacy in reference to mortgages and home buying. Despite this confidence, almost half (46%) were unfamiliar with down payment assistance programs that allow homebuyers to put down a smaller amount of money.

Survey methodology

This report presents the findings of a CARAVAN survey conducted by Big Village among a sample of 1,007 U.S. adults ages 18 and older who have never owned a house and plan to buy their first home in 2023. The survey was live on February 13-March 1, 2023.

Low-to-moderate-income homebuyers are defined as respondents having household income within 50% to 80% of the median family income for their state.

This story was produced by TD Bank and reviewed and distributed by Stacker Media.