The inaugural Bank of America Homebuyer Insights Report reveals first-time homebuyers are shopping for the long term
By Andrew Leff
Starter and trade-up home inventory has decreased over the past few years as builders have shied away from constructing more first-time buyer oriented homes due to rising land and materials costs. Further justifying the move towards building higher-end homes, Bank of America’s new Homebuyer Insights Report found that 75 percent of first-time buyers would prefer to bypass the starter home and purchase a house that will meet their future needs, even if that means waiting to save more. Thirty-five percent even plan to retire in this first home.
The Bank of America Homebuyer Insights Report offers a modern perspective on the attitudes, behaviors, and preferences of today’s homebuyer. The report considered trends revealed from the survey that are transforming the ways consumers view homeownership and how real estate professionals can assist today’s homebuyers based on what homebuyers want in a home, why they’re making the purchase, and the unique preferences of Millennials and first-time homebuyers.
Remaining Steadfast on Homeownership Goals: The Homebuyer Insights Report shows that first-time buyers are not willing to budge on what they want. Only 17 percent of first-time homebuyers said they’d sacrifice location, and 36 percent said they’d sacrifice features in their dream home, proving they’d rather continue saving to get what they want instead of lowering their budget.
These findings complement the trends that millennials have been demonstrating, such as waiting longer to get married and have children, which are usually factors that contribute to delaying their home purchase. This isn’t a worrisome sign for the housing market, considering the previous speculation that millennials didn’t even see homeownership as a goal.
The report revealed that millennials, like previous generations, see homeownership as a top priority alongside saving for retirement. With such a long-term view on homeownership, and contrary to recent speculation about the younger generation wanting to remain in the cities, it seems natural that they desire a single-family home in the suburbs. Today’s buyers also consider these four factors above everything else in evaluating a prospective home: cost (82 percent), neighborhood (71 percent), floor plan (60 percent) and square footage (47 percent).
Despite high standards for housing, the majority of today’s homebuyers are sticking to their budgets. Only 15 percent of those surveyed spent more than budgeted on the down payment, and 23 percent were over on the total cost of their home.
Patiently Saving Toward their Desired Home: Half of the surveyed “someday” first-time buyers said they are waiting until they can save more money to buy their desired home or find one in the neighborhood they want. Forty-seven percent are waiting because they do not think they can currently afford a home or the type of home they would like to buy.
Another common reason for putting off a first-time home purchase was the desire to pay down debt. The report found Gen Xers were more likely than millennials to cite debt as a reason for waiting to buy a home (43 percent vs. 32 percent). While many of the millennials surveyed have student debt (43 percent), Gen X homebuyers are balancing multiple financial priorities, such as credit card debt, retirement savings and saving for their child’s college education.
Bank of America has solutions to help customers save and budget, using tools such as Better Money Habits and Save for a Goal. Better Money Habits teaches customers the basic and advanced skills they’ll need to save for things such as a down payment. The Save for a Goal tool allows consumers to customize a savings plan to set aside money for a future expense, whether that’s getting married, buying a house, planning a big vacation or simply putting money aside for a rainy day. Whatever your short-term savings goals, it’s important to understand your savings options.
Overcoming Homebuying Challenges: While younger first-time homebuyers largely associate homeownership with adulthood (58 percent) and success (54 percent), the majority (66 percent) still expect some type of help, financial or otherwise, from their parents when buying a home.
Thirty-one percent of first-time millennial buyers expect financial support from their parents or partner’s parents in buying their first home, including help with the down payment (19 percent) or monthly mortgage payments (15 percent). This is a big generational difference, as historically, homebuyers have not outwardly expressed an expected monetary contribution from their parents.
Many millennial first-time homebuyers are also counting on non-financial support. More than one in three expects their parents to help them physically move in, and 25 percent will rely on their parents to help them choose the right home to buy.
Some of this assistance comes with strings attached. Seventy percent of millennials said their parents’ help means they will have a say in the buying process, mainly how much to spend on the home (41 percent), as well as where (33 percent) and which home to buy (28 percent).
With or without their parents’ help, potential homebuyers should talk to a professional about what type of home or neighborhood they can afford. There are also tools, such as the Bank of America Down Payment Resource Center, which can help homebuyers find out immediately which federal, state or local down payment and closing cost programs they might be eligible for. The online tool gives prospective home buyers access to a searchable database of more than 1,300 down payment and closing cost assistance programs in their local market.
For home buyers who just started their professional career and think that their student debt will prevent them from buying a home, special programs considering their unique situation are available. Bank of America offers Doctor Loans for residents and licensed, practicing doctors which can provide advantages such as lower down payment options, student loan debt not included in total debt calculation and financing for primary residences.
Younger mortgage borrowers can also benefit from loyalty incentive programs offered by lenders. Through its Preferred Rewards program, Bank of America rewards existing customers with a mortgage relationship credit, up to $600, on a mortgage to buy a home or refinance an existing loan.
Buying a Home for Emotional and Financial Reasons: Homeownership continues to be the foundation for building long-term personal wealth, strong communities, and a sense of stability for families. Many of our clients say owning a home gives them a sense of security and the prospect of building equity as home values rise over time. They are also looking for value in the full spectrum of their financial activity, not just a single or one-time benefit. By taking into account a homebuyer’s overall life priorities, mortgage professionals can provide an assessment to help determine the right time for individuals to buy a home and where homeownership fits into their long-term goals.
The report’s findings are based on a national survey of more than 1,000 adults 18+ who want to buy a home in the future, and particular focus was given to the preferences of first-time and millennial buyers (defined as those between ages 18 and 34).
Andrew Leff s the National Builder Executive for Bank of America. For more information on the Bank of America Homebuyer Insights Report, visit info.bankofamerica.com/2016-homebuyers-report/.