First-time homebuyers will have better luck in the Southeast if they are looking for a more affordable home, according to a new analysis from Zillow®. Orlando and Tampa top the list as the best markets for first-time buyers, with affordable homes and relatively more inventory than other markets. Also making the list are San Antonio, Atlanta, and Dallas. These markets are less competitive, and buyers will see strong growth over the next year as they begin to accumulate equity.
Zillow's list of the best markets for first-time buyers is based on five metricsi:
- Lower median home value for a more affordable down payment
- Strong home value forecast as an indicator of building equity
- Higher inventory-to-household ratio to capture available supply
- Shorter Breakeven Horizon to show a financial advantage of buying over renting
- Greater share of listings with price cuts to indicate a less competitive market
While first-time buyers make up nearly half of recent buyers, according to the 2016 Zillow Group Report on Consumer Housing Trends, having enough saved for a down payment could be holding first time buyers back in certain markets. More than two-thirds of renters say that saving for a down payment is the biggest barrier to homeownership. In all but three of the 10 best markets for first-time buyers, the median home value is lower than the national median home value, which means they require less money up front as a down payment.
The Bay Area and Pacific Northwest have strong job markets, but new buyers will have a tough time entering the market due to low inventory and high home prices – buyers in these areas will have to come up with more than $70,000 as a down payment. However, those looking to buy in Florida only need to put about $40,000 down on a median home.
"As millennials reach the typical home buying age, they are coming into a tough housing market with low inventory and lots of competition," said Zillow Chief Economist Dr. Svenja Gudell. "These markets have more favorable conditions for first-time buyers to become homeowners. More challenging metros aren't out of reach for new buyers, but they should be prepared to face a more competitive buying environment."
Ten Best Markets for First-Time Homebuyers
1. Orlando, Fla.
2. Tampa, Fla.
3. Indianapolis, Ind.
4. Las Vegas, Nev.
5. San Antonio, Texas
6. Pittsburgh, Pa.
7. Atlanta, Ga.
8. Detroit, Mich.
9. Dallas, Texas
10. Cleveland, Ohio
A 5 percent down payment in the Bay Area is larger than a 20 percent down payment in most of the best markets for first-time buyers. For buyers who can come up with a down payment, low inventory and few price cuts make these markets especially competitive.
First-time buyers are more likely to exceed their budget than repeat buyersiii. Zillow Group recently launched a new consumer brand, RealEstate.com, aimed at first-time home buyers, that enables them to search and compare homes based on an "All-In Monthly Price" which factors in costs like mortgage, property tax and utilities to have a better understanding of a home's true cost.