CHERRY HILL, NJ – April 11, 2023 – Amid cooling inflation and rising housing costs, many first-time homebuyers feel more certain about their financial situations, according to a recent study from TD Bank, America's Most Convenient Bank®. TD's First-Time Homebuyer Pulse found that 54% of respondents indicate they are now better off financially than they were two years ago. And while buyers' perception of the economy and affordability continue to draw concern, rising rent may be driving homeownership interest.
TD Bank surveyed 1,007 Americans planning to buy their first home in 2023 to learn more about their path to purchasing a home, as well as their thoughts on preparedness for the process as housing costs fluctuate nationwide.
First-Time Homebuyers Maintain Optimistic Outlook, Amid Market Concerns
Among those looking to purchase a home for the first time in 2023, 39% believe now is a good time to buy. Many who have begun their process are also showing signs of preparedness with 48% starting to save for a down payment. Additionally, more than eight in ten (85%) respondents indicated buying a home was a good long-term investment.
Though first-time buyers are looking more optimistically toward the homebuying season, reservations remain, with a majority (69%) concerned about the economy and 64% concerned about their ability to afford a home with rising interest rates. That worry persists for six in ten respondents when considering the ability to afford a home combined with other expenses.
“Although typically overlooked when beginning the search for a home, meeting with a lender can help first-time buyers better understand the additional costs and opportunities associated with homeownership,” said Steve Kaminski, Head of U.S. Residential Lending at TD Bank. “Against the backdrop of higher rates, continued inflation, and low housing inventory, it is especially important for consumers to speak with mortgage professionals and realtors early in the process to create a well-adjusted budget and identify a comfortable price range for their homebuying search, better positioning them to compete and make an offer on the home that meets their unique goals.”
Rate hikes have also fueled some good financial habits, including the 43% of participants who cited that they have started monitoring their credit report or taken steps to improve their credit score to potentially reduce interest rates for their home loans. Additionally, 48% have established a homeownership budget for their first-time home purchase this year.
Rising Rent Costs Push Homebuying Interest
As you may expect, nearly two in five (38%) renters have considered delaying their home purchase and continuing to rent in 2023. Among them, 30% said the top reason for potentially delaying their homebuying plans is an inability to afford the home they want due to rising interest rates.
Interestingly, many have had the opposite reaction, seeing rising rent costs as a stimulus to forge ahead with purchasing a home. Of those survey participants who have not considered delaying their home purchase, 40% cited rising rent prices as the top reason prompting them to move forward with buying a home.
“Even as rates have risen in comparison to the historically low-interest rate environment many experienced in the past two years, buyers see the importance of building equity in a home purchase,” said Kaminski. "Homeownership has and continues to be a sustainable way to build intergenerational wealth, while providing the added benefit of shoring up a buyers' financial position over the long-term."
Buyers Make Lemonade Out of the Big Lemon – Rising Rates
While inflation and rising rates are two factors first-time homebuyers can't control, some are rethinking their approach to provide some flexibility in the home buying process. In fact, 59% of those looking to purchase a home this year indicate they want to pursue a fixer-upper or starter home.
More than one-third (34%) of those who plan to buy a fixer-upper or starter home are seeking a more affordable home. More than half (52%) of those planning to buy a fixer-upper or starter home cited that current market conditions impacted their decision.
Homebuyers aren't just getting creative with the type of home they’re looking to purchase. They're also coming up with long-term solutions to combat the current rate environment. More than one-fourth (27%) plan to refinance when interest rates come down.
"Depending on a buyer's personal financial situation, how long they expect to be in the home and other risk-based considerations, there may be alternate mortgage options to consider in the near- and long-term when it comes to financing a home," said Kaminski. "But it's always important to talk through those options to weigh the benefits and risks with a mortgage professional early in the process."
That sound advice continues to only motivate a small portion of first-time homebuyers, with just 22% starting the process of speaking with a mortgage lender.
Breaking through Misconceptions
While inflation, home supply and shifting rates may present challenging barriers to homeownership, there are a few misconceptions homeowners should look to avoid as they begin the process:
- Learn about home ownership: The majority of participants (82%) agree that homeownership is important to them. It's equally important to complete your due diligence around homeownership. Understanding what you need to know better positions you to work with realtors and lenders during the process.
- Reconsider your down payment requirements: First-time homebuyers have a wealth of options when it comes to flexible lending needs, including down payments. Almost half of survey participants (44%) cited that saving money for the down payment was a barrier to purchasing a first home. Additionally, 81% of low-to-moderate-income (LMI) respondents ranked affordability of the down payment as one of the top three barriers they are concerned with facing during the homebuying process. Many lenders offer flexible down payment assistance programs, which allow borrowers to provide as little as 3% down when purchasing their first home. Among survey participants, more than one-third (35%) anticipate utilizing a down payment assistance program to buy their first home.
- Talk to a lender early: True in any market, speaking with a lender can give a first-time homebuyer a snapshot of their budget, potential closing costs and which first-time homebuyer assistance programs they could be eligible for. This is especially true for low to moderate income (LMI) buyers. Among LMI respondents, more than eight in ten (82%) of respondents felt confident or neutral in their financial literacy in reference to mortgages and homebuying. Despite this confidence, almost half (46%) were unfamiliar with down payment assistance programs that allow homebuyers to put down a smaller amount of money.
This report presents the findings of a CARAVAN® survey conducted by Big Village among a sample of 1,007 U.S. adults ages 18 and older who have never owned a house and plan to buy their first home in 2023. The survey was live on February 13 – March 1, 2023.
Low- to moderate-income homebuyers are defined as respondents having household income within 50% to 80% of the median family income for their state.
About Big Village
Big Village is a global advertising, technology, and data company. Driven by our diverse group of experts, we provide a new way of working by bringing programmatic solutions, media, insights, and creative all under one roof. Big Village is headquartered in New York and has 12 offices across North America, Europe, and Australia. Find out more at https://big-village.com/.
About TD Bank, America's Most Convenient Bank®
TD Bank, America's Most Convenient Bank, is one of the 10 largest banks in the U.S., providing more than 9.7 million customers with a full range of retail, small business and commercial banking products and services at more than 1,100 convenient locations throughout the Northeast, Mid-Atlantic, Metro D.C., the Carolinas and Florida. In addition, TD Bank and its subsidiaries offer customized private banking and wealth management services through TD Wealth®, and vehicle financing and dealer commercial services through TD Auto Finance. TD Bank is headquartered in Cherry Hill, N.J. To learn more, visit www.td.com/us. Find TD Bank on Facebook at www.facebook.com/TDBank and on Twitter at www.twitter.com/TDBank_US and www.twitter.com/TDNews_US.
TD Bank, America's Most Convenient Bank, is a member of TD Bank Group and a subsidiary of The Toronto-Dominion Bank of Toronto, Canada, a top 10 financial services company in North America. The Toronto-Dominion Bank trades on the New York and Toronto stock exchanges under the ticker symbol "TD". To learn more, visit www.td.com/us.
Corporate Communications Manager