Working with first-time buyers has never been easy, and this year was particularly tough for real estate agents hoping to help clients buy their first home.
As noted in the National Association of Realtors’ 2017 Profile of Home Buyers and Sellers, first-time buyers made only 34 percent of home purchases this year, which “gravitates away from the historical norm at 40 percent of the market.”
While it’s true that first-time buyers have more barriers to homeownership than repeat buyers, these obstacles can usually be overcome, especially with the help of an experienced buyer’s agent. Still, first-time buyers aren’t eager to become homeowners — at least not as eager as they used to be.
Despite incentive programs and signs of a strengthening economy, the percentage of first-time buyers in 2017 is still several points lower than the norm.
Why?
One possibility is that too many agents strive to solve first-time buyers’ surface problems without giving any consideration to the underlying issue — they’re deciding whether to buy based on information that’s limited, outdated or entirely incorrect.
If you want to take more first-time buyers to closing in 2018, you should always ensure that your buyer clients know these three things:
1. Interest rates are still great
Sure, the average interest rate is slightly higher today than it was when the housing market bottomed out several years ago, but it’s still significantly lower than rates were in the 1980s, 1990s and early 2000s.
As shown on a FreddieMac chart tracking rates for 30-year mortgages from 1971 until today, 2017’s monthly rates hit their peak at 4.17 percent in February. Ten years ago, rates exceeded 6 percent every month of the year. Twenty years ago, rates were even higher.
If your first-time buyer clients are on the fence about buying now due to current interest rates, emphasize how great rates still are. Besides, top economists predict that mortgage rates will only rise higher in the next few years, though they’ll remain modest compared to historical rates.
2. Home prices will likely increase
The ongoing inventory shortage is expected to persist though 2018, which means home prices will only continue to rise in most markets.
First-time buyers planning to wait for major price reductions should know that they could be waiting for years — there’s simply no telling how long it will be before our current seller’s market comes to a close.
As they wait, the money that could have gone toward paying down the principal on a home mortgage will be wasted on rent.
To truly change a renter’s mind regarding homeownership, it’s easiest to work the numbers with them. Create comparisons between their rental arrangement and local homes for sale to demonstrate that homeownership often makes more financial sense.
3. Obstacles to homeownership can be overcome
Many first-time buyers, especially millennials, postpone homeownership due to obstacles like poor credit and the expenses associated with closing. Although it’s true that these obstacles can make it difficult to purchase a home, they’re easier to overcome than many first-time buyers think.
As you know, it doesn’t take stellar credit to get approved for a home loan. In fact, according to the FHA’s Annual Management Report for 2017, the average credit score for FHA borrowers actually decreased from last year to 676.
Ensure that all of your buyer clients, especially first-time buyers, are aware of current home-loan options. Even better, put them in touch with a mortgage professional who can explain exactly what they qualify for.
The next time you encounter a first-time buyer who’s hesitant to pursue the possibility of homeownership seriously, explore these topics, and help them understand why buying now is not only a possibility, it’s a great idea.
Pat Hiban is the author of the NYT bestselling book “6 steps to 7 figures: A Real Estate Professional’s Guide to Building Wealth and Creating Your Destiny,” the founder of online real estate sales training site Rebus University, and the host of Pat Hiban Interviews Real Estate Rockstars, an agent-to-agent real estate podcast with Hiban Digital in Baltimore, Maryland. Follow him on Instagram and Twitter.
