First-time home buyers can’t keep up with ‘exhausting’ price growth

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While record-setting price growth has boosted homeowner equity to historic levels, they’ve also made it nearly impossible for first-time buyers to save for a down payment.

As of June, the typical borrower needed 7.9 years to accumulate 20% down, compared to 7.1 years in January 2020, according to Tomo. This assumes a savings rate of 10% of income per month, which is high for most consumers.

Among the top 50 metro areas, the scalding hot market of Boise, Idaho saw the biggest jump in time-to-save over that period, going to 12.5 years from 9.3. San Diego rose to 16.8 years from 14.6 and Austin, Texas — which is expected to be the hottest market for home price growth in 2022 — went to 10.1 years from 8. Notably, Los Angeles expanded to 19.2 years — the highest overall in the country — from 17.3. The lowest times-to-save came in Rochester, N.Y., at 5.7 years, and Pittsburgh and Oklahoma City each at 5.8 years.

“The down payment is getting harder and harder to build up over time. That means plenty of first-time buyers need low down payment options like never before to pull off their purchase,” Skylar Olsen, Tomo principal economist, said in a statement to NMN. “First-time buyers increasingly turn to their mortgage lenders to understand all their options, and that might mean exploring different products like FHA loans, because to keep up with the down payment under this kind of appreciation is exhausting.

With skyrocketing prices — especially for starter homes — and a Biden administration mandate to raise the rate of homeownership, down payment assistance programs are getting increased attention. The latest infrastructure bill, for example, includes a provision for up to $25,000 in down payment assistance for first-time home buyers.

Annual home price appreciation reached a 42-year high in June and the digital mortgage and home-purchasing platform’s report showed the month’s 2.1% growth rate from May was the largest on record and that alone added an average 1.7 months to the 20% down savings timeline.

However, June’s gain hit everywhere differently. Prospective buyers in Boise needed an additional 6.1 months to save, followed by 5.3 months in Austin and 4.8 months in San Diego. The lowest came at 0.7 months in Baton Rouge, La., and 0.8 months in Albany and Syracuse, N.Y., and Little Rock, Ark.

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