In a broad perspective, the market looks to have a low supply of beginner homes paired with rising home prices. This market situation is proving to be challenging for those looking to purchase their first home.

The National Association of Realtors released information showing that the normal price of a previously owned home was $250,000, which has increased 6 percent from last year. The median price was higher in certain areas of the U.S., specifically the Northeast and the West. As well, small and affordable homes are selling quite quickly when they hit the market. Even with the seasonal increase in demand, buyers are seeing a lack of new listings. The traditional “starter house” is almost missing in the market.  

The new homes being built are more geared towards affluent buyers, cutting out the starter buyers. Investors are investing in single-family homes for rental properties to diversify their holdings. Danny Gardner, senior vice president of affordable lending and access to credit at Freddie Mac, believes that this is creating more competition for traditional buyers when homes come on the market.

Cities like San Francisco and Boston are all deemed “hot” markets at the moment. Realtor.com also has recognized parts of Texas and Colorado have become a cutthroat market. Even with intense bidding wars in a few markets, first-time buyers often have issues coming up with a down payment. Now, many home buyers are making much smaller down payments than the expected 20 percent. More than half of first-time buyers made down payments of 6 percent or less in the 12 months ending in November 2017.

The 20 Percent

The “rule of thumb” of paying 20 percent for the downpayment is still a sound strategy if you can afford it. It will qualify you, normally, for a lower interest rate on your mortgage and will avoid you from paying private mortgage insurance. As well, a 20 percent down payment is likely to be more attractive to sellers during the bidding process. For a majority of the time, buyers who can pay the 20 percent down payment usually win the bidding war.