 Without first-time homebuyers, the real estate market would be quite different. In making the transition from renter to buyer, first-timers put a series of events in motion that eventually allow repeat buyers to move up to bigger or better homes. Otherwise, move-ups are totally dependent on newcomers to the area.
"One indicator of the vitality of the current housing market is the large number of first-time buyers," says Jack C. Harris, research economist with the Real Estate Center at Texas A&M University. Harris conducted a survey of Texas homebuyers, and more than 30% of those responding were novices.
Research shows that once people become homeowners, they tend to remain owners the rest of their lives, Harris says. Of course, the trick is becoming a homeowner in the first place. "Not all the hurdles facing first-time buyers are financial," Harris says. "First-timers enter the complicated buying process with no prior experience but with the realization that a mistake could be costly. Not surprisingly, survey results show that first-time buyers rely heavily on professionals to see them through the home-buying process."
Harris notes that a concerted effort by mortgage lenders to make more loans available to minorities is having an impact. "Because of these policies and generally increasing prosperity, the ranks of first-time buyers are becoming more ethnically diverse," he says.
Hispanics made up 9.6% of first-time buyers responding to the survey but 6.5% of repeat buyers. African-Americans were 7% of first-timers but only 2.7% of repeats. Asians were 3.5% and 1.9%, respectively.
"The detached, single-family house is the overwhelming choice of both first-time and repeat Texas buyers," notes Harris. "A small number of first-time buyers use duplexes as their passport to homeownership. Regardless of the type home purchased, the median price of first homes is significantly lower -- $102,100 for first-time buyers -- compared to $163,300 for homes purchased by repeat buyers."
Most first-time buyers have the same motivation. Eighty-one percent of respondents said they bought because they were "tired of renting." Almost half cited the desire for a larger home. In fact, a greater percentage of first-timers (45.7%) said they wanted a larger home than did repeat buyers (38.7%).
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The survey shows that first-time buyers are more likely to move because they get married or are forced to move. On the other hand, they are much less likely to be relocating from another town than are repeat buyers.
Who spends the most time searching for a new home, first-timers or repeaters? Despite their lack of experience, first-timers actually spend less time searching the market -- 3.7 months on average compared with 4.4 months for repeat buyers. First-timers also visit fewer homes -- 15.1 compared with 17.3 for repeat buyers. And Harris thinks he knows why. "First-time buyers were much more likely to use the services of a real estate agent -- 90.4% compared with 78.4% for repeat buyers. Overall, those who used agents tend to spend less time searching. Interestingly, about the same proportion of each group used a buyer's agent -- 64.5% for first-timers and 63.5% for repeat buyers."
Relying on an agent apparently influences the way first-time buyers apply for financing. A larger percentage of first-timers applied for a loan in the broker's office than did repeat buyers. This was done either through a point-of-sale system with help from the agent (17.4% compared with 8.2% for repeat buyers) or through an in-house mortgage banking-brokerage operation (13.8% compared with 7%).
Many first-time and repeat buyers find their real estate agent in the same way. They ask a friend. Nearly 38% of first-timers found their agent that way compared with 27.6% for repeat buyers.
The types of services buyers want from their agent varies little between first-timers and repeaters. First-time buyers, however, rate "being kept informed" as the most valued agent service. Repeat buyers (71.1%) say "preparing the contract" is of most value to them. First-time buyers also differ on whether or not their agent performed well. More than 80% of repeat buyers say their most valued service was done in a "very good or excellent" manner. Only 69% of first-timers were pleased with the degree of information they received from their agent.
"Perhaps in the current market, first-time buyers with limited resources and bargaining power find the process more frustrating and make the agent the target of their dissatisfaction," Harris says.
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