More 20-somethings buying houses
By ROGER HARRIS
Scripps Howard News Service
September 24, 2003
- Young home buyers often don't know what they want. A new subdivision or a mature neighborhood? Two-story or ranch-style? How many bedrooms? Pool?
Few have very much money salted away for a down payment, and their jaws drop when they consider the high cost of entry-level homes in many regions.
And yet, the number of buyers in their 20s is increasing nationwide, real estate experts say.
"I work with quite a few younger buyers," said Bob Dougherty, a Realtor with the Coldwell Banker Real Estate office in Ventura, Calif. "I guess I'm up for the pain because they are more difficult than the average buyer."
They may need more hand-holding, but buyers under age 25 are the fastest-growing home-buying age group in the country, according to zipRealty Inc., an Internet-based real estate brokerage.
About 1.5 million homeowners nationwide are younger than 25, more than twice the number from just 10 years ago, zipRealty reported. And the median age of all first-time buyers is falling. In 2001, the median was 31 - five years younger than the median in 1993.
Low interest rates and a wide array of financing options have convinced many young people that home ownership is a good investment, said Melinda Speck, a zipRealty district director in Southern California.
Some young buyers get down-payment help from parents who see home prices soaring and want to make sure their children get into a house. Even those who don't have help from mom and dad, however, are finding out owning can be cheaper than renting, Speck said.
"Even with interest rates popping up a little recently, rates are still historically low, which makes owning much more affordable," Speck said.
Dougherty said many of his younger clients are eschewing the traditional 20 percent down payment and 30-year fixed rate loan. Instead they are taking advantage of 100 percent loans, 103 percent financing, adjustable rate mortgages, interest-only loans and other special first-time buyer programs lenders are offering.
"They just want to get in the game," said Dougherty, who has been selling houses for more than 20 years.
Talk from some quarters that the market might be overheated and home values will slide 20 percent or more doesn't frighten them, Dougherty said.
"They aren't nearly as afraid of a market correction as some other buyers are," Dougherty said. "Most of them are buying on the aspect they want to live there for 10 years and if (prices) go down they believe they're going be in the home long enough for prices to come back."
Sticker shock, however, is often a factor. Home prices were a major psychological hurdle for Robin and Vince Hodge.
"We hadn't saved a down payment and felt like we couldn't get a home," said Robin, 29. " ... We kept trying to save, but prices kept going up and we couldn't save fast enough."
A talk with a financial planner, however, convinced the Hodges they needed to buy a home as soon as possible even if they didn't have a down payment. At the financial planner's recommendation, they contacted Dougherty.
"Bob helped guide us through the process. We started looking at homes, found a brokerage to help us pre-qualify ... Everything kind of went into fast forward, and within the first week we had put an offer on the home we bought," Robin said.
Her biggest surprise: Not needing a down payment.
"We did an 80/20. It saved us a lot of money, money that we were able to put into fixing up the house and buying furniture," said Robin, a product manager for a large corporation.
So-called 80/20 loans have become a popular option for buyers with no money for a down payment, Dougherty said.
Typically, these loans include a first mortgage for 80 percent of the selling price and a second mortgage for 20 percent of the selling price. Borrowers pay a higher interest rate to get the second mortgage, but they don't have to buy private mortgage insurance, or PMI, which can add hundreds of dollars to the monthly house payment.
While many young buyers buy a home primarily as a place to live and raise a family, some young buyers are investment-oriented.
The tried-and-true law of supply and demand should make housing in many regions a solid investment, real estate experts say. With more buyers than available housing, home values have seen 15 percent to 20 percent annual appreciation in the last three years.
"We have a serious housing supply problem in the county, and that is the principal reason why 'bubble-like' housing price conditions are currently prevailing," economist Mark Schniepp, director of the California Economic Forecast in Santa Barbara, wrote in a report released earlier this month.
As long as housing shortages exist, home values will continue to rise, which will make them a good investment for buyers of any age, Dougherty said.
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