The benefits of home ownership are often put in financial terms. A home will usually appreciate in value over time, helping to build a person’s personal wealth and acting as a form of relatively painless savings plan. Paying a mortgage is not like paying rent because the payments are for an asset that one owns, and the payments are predictable over time, depending on the type of mortgage. The equity a person builds in a home can be leveraged for other purposes, such as purchasing a second property, or investing.
Are these same benefits uppermost in the average person’s mind when he or she goes shopping for a home? Yes, and no. Data from the National Association of Home Builders (NAHB) in the United States gives some insights into the financial status and personal preferences of first-time home buyers and buyers of new homes in the last several years.
The home is more important than anything else
One thing that emerges clearly is that those who bought new homes were much more concerned about the home itself, and less concerned about price and other factors. They looked at eight different homes before deciding, and they focused on the size of the home, and on how it looked both inside and out, the quality of the construction, and its location. New home buyers consistently expected more from their homes: larger, better neighbourhoods, better looking exteriors, and better overall design.
When asked about why they chose a particular neighbourhood in which to purchase, most buyers across the board still said it was the house itself that clinched it for them. Factors one might expect to play an important part in the decision—proximity to friends and family, presence of amenities, closeness to workplace, closeness to schools—were actually significantly less important for the American home buyers. Safety was important to new home buyers, less so for first-time buyers.
As for price, new home buyers were much less concerned. In fact, first-time buyers were more concerned about price than all other buyers.
This is not surprising. First-time buyers are starting out with less money to spend. The median income for first-time buyers was $62,987, 10 per cent lower than that of all home buyers. (2013). People who bought new homes had a median income of $84,987, while those who bought existing homes earned $67,974. New home buyers had a median income 21 per cent higher than resale home buyers.
The values of the homes they bought were correspondingly higher or lower. The median value of homes bought by first-time buyers was 13 per cent below that of all homes purchased.
Canadians may be surprised, if not envious, to see that Americans can still buy a home without a down payment. In 2007, fully one-quarter of first-time buyers were able to purchase homes with no down payment. Since the financial crisis, credit standards have tightened in the US, but as of 2013, 11 per cent of home buyers made no down payment. That number includes buyers who paid cash for the home, as well as those who took advantage of a zero-down payment loan.
In Canada, in the same year, a BMO survey found that first-time buyers were about the same age as in the US, in their late twenties, early thirties. Home values were significantly higher in Canada, though, and the average (not median) first-time buyer had a down payment of $50,576, or 16 per cent of the average home cost.