The good news for Millennials in Twin Cities looking to buy a first home is, according to a nationwide survey of potential homebuyers, 20’s and 30’s have more savings than in previous years to put down a down payment.
The bad news is that almost every other factor in the real estate market is working against them. While it is true that mortgage interest rates remain extremely low, the inventory of existing homes for sale is incredibly thin, which has driven home prices up. Homes in the traditional price range for young first-time buyers ($ 250,000 to $ 325,000) are almost non-existent, and those that come onto the market receive multiple offers, usually well above the list price.
Add to that the fact that lenders aren’t in the mood to endorse buyers who even smell like a bad credit history, and it’s clear why buying a new home has become an exercise in frustration for generation Y.
“I’m in a conundrum,” says Les Ferris, mortgage loan officer at Propel Home Loans in Lakeville. “I work in the housing industry and I am supposed to advocate and help people buy a house. However, on a daily basis, I want to shout: “Everyone stop!” It’s out of control. But that’s the market. I think everyone just needs to take a break and think about what’s good for them.
Real estate professionals say a number of factors are behind the shortage of existing homes on the market, including homeowners who want to escape the pandemic before listing. In addition, the rise in the price of lumber and other materials has pushed up the price of newly built homes that existing owners would normally move into.
Ferris points out that to help the country emerge from the 2008-09 housing crisis, the federal government prompted Wall Street investors and private equity firms between 2013 and 2015 to purchase hundreds of thousands of single-family homes that had been recovered by banks by seizure. These homes are now rented at high rates and won’t be on the market anytime soon, helping to put the American dream of homeownership beyond the reach of thousands of potential buyers.
Recently, Ferris says, there was a house in Roseville on the market for less than $ 300,000. “If you want to live in Roseville and 25 other people want to live in Roseville. … We hear some fascinating numbers. A guy told me that 70 sessions had been booked on a list in three days and that sellers were getting 20 or more offers. “
Patience and perseverance
According to Minneapolis Area Realtors, a trade association:
- The median selling price of residential properties has increased 9.5% to $ 308,900 since March 2020.
- Single-family homes recorded the largest price increase, climbing 8.9% to $ 332,000.
- Residential real estate priced between $ 190,001 and $ 250,000 sold the fastest – an average of 28 days.
- Market-wide, inventory levels were down 46.3%.
The message to millennials of Twin Cities real estate professionals is to go ahead and find a home that meets your needs, but be prepared to be outbid by stronger buyers on multiple offers. The search for a home becomes moving, they say. It is important to understand that real estate markets are cyclical and that patience is often the best advice in such a competitive market.
“If you really can’t afford a house over $ 300,000, I’d wait a year rather than tax you too much and run out of money,” says Sean Barnard, real estate agent at Edina Realty.
“You’re going to go through the frustration, but it’s important not to settle for something that isn’t the right home,” adds Chad Johnson, mortgage consultant at Edina Realty Mortgage. “Eventually the market will improve. When will this happen? Who knows? If you can wait a bit and don’t want to deal with the frustrations, get out there. “
The competitive nature of today’s nationwide residential real estate market is driving some millennials who are adamant about entering a home to take more risk, according to a survey by Clever, an online platform that connects buyers and sellers to real estate agents in their area.
For the third year in a row, Clever surveyed around 1000 millennials in January, who said he plans to buy a home in the next year or so about his hopes, anxieties and the compromises they are willing to make to become homeowners.
One indicator of the competitive nature of the current market is that 29% of survey respondents said they would be willing to buy a home without seeing it in person. For the right house, photos or a virtual tour would suffice. The Clever survey also found that 71% of Millennials are willing to buy a “top fixer” (up from 68% in the 2019 survey).
For the record, some buyers agree to bypass a home inspection before making a purchase, a move Barnard and Ferris say they adamantly advise against.
“I would never personally buy a home without an inspection, no matter the market,” Barnard says. “You can have foundation issues that could cost $ 50,000 to $ 70,000. You may have furnace problems. You may have roof problems. You could have plumbing or electrical problems. Your purchase is as good as your inspection over and over again. “
Become a strong buyer
There isn’t much to do for first-time buyers to compete with those with deeper pockets who may come up with a lot more for a down payment or even make a cash offer.
“The numbers I would like to find are the amounts of money coming in here from the east and west coasts,” says Ferris. In the emerging era of working anywhere, Ferris says it’s possible for owners on both coasts to sell and move to cities like Minneapolis and St. Paul. He encountered a house that was recently sold to a buyer in California in an all-cash, invisible transaction. “A $ 400,000 house for someone in California is very cheap.”
However, there are ways for first-time buyers to put themselves in a stronger position to make a successful offer. These include:
Increase your deposit – More money down is a testament to a buyer’s strength, Ferris says. You can get by with a 5% down payment, but if you can put in more, it improves the chances of your offer being approved.
Pre-approval – Potential buyers should meet with a lender to obtain pre-approval for a loan before starting their search. Sellers want reassurance that a buyer can close without a problem. A pre-approval letter from a lender stating the loan amount a person is entitled to and guaranteeing a buyer’s income, savings, debt, and creditworthiness will make them a stronger buyer.
Ability to cover assessment gaps – Suppose you make an accepted purchase offer for $ 300,000 with a down payment of 5% ($ 15,000). Your lender agrees to provide the remaining $ 265,000 provided the home is appraised for the purchase price of $ 300,000. If the property is only valued at $ 265,000, the mortgage lender can only approve a loan of $ 251,000. It is up to the buyer to find the funds to close the gap. Stating this in your purchase contract will reassure the seller that a valuation discrepancy will not delay the sale.
Flexibility – Being flexible in a number of ways increases the chances of success in finding a home. The more neighborhoods you are willing to consider, the more homes you will need to look at. Also, it’s a good idea to tell a seller that you will close on a date of their choosing, if possible. Barnard says many people sell their homes before trying to avoid having to make a conditional offer.
Be seller focused – Salespeople are concerned about what they will get out of a sale. Loading a purchase order with requests that the seller cover closing costs or take other actions that will reduce the amount the seller walks away with weakens an offer.
Find an agent who will be your lawyer – In a sellers market, you need to work with a real estate agent who will work hard to get your offer approved. An agent can find out what is most important for a salesperson to strengthen your offering.
Did we mention patience?
Not only do potential buyers need to be patient enough to find the right home, but in this market, they also need to be willing to stay put once they buy. “The average person moves every five years. In a sellers market, you have to consider living in a house for the long term because you are likely going to be paying more than what the house is worth, ”says Barnard. With his clients, he stresses the importance of reviewing sales of similar homes in the neighborhoods they are looking for in order to minimize the risk of overpaying.
Buying a home is an emotional experience, but it’s important to keep your emotions in check and not let them lead to a bad decision.
“What worries me is the frenzy,” says Ferris. “We are human beings and we are taken by the emotions. We all see our friends doing something and we think it’s the fear of losing. I want everyone who wants to buy a house to be able to buy a house, but I also want people to pause, take a deep breath, and say, ‘Everything will be fine. “Go smart. Make your offer as strong as possible. But in the end, it’s okay if it doesn’t work out. We’ll take you there… someday… soon… I hope.
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