First-time Homebuyers Optimistic Amid Uncertain Market

A TD Bank survey finds first-time homebuyers are optimistic about becoming homeowners, saying it’s a good time to buy—despite volatile mortgage rates and low inventory. 

TD’s First-Time Homebuyer Pulse found that over half (54%) of survey respondents say they’re doing better financially today than they were two years ago, thanks in part to cooling inflation. 

Consumer perception of the economy and housing affordability may not be glowing right now, but rising rents are driving more of them toward homeownership. 

It makes sense. The more your income goes down the drain for a home that makes you poorer instead of wealthier, month after month… the more likely you are to think, “How much (more) would I have to pay to actually own a home—even if it doesn’t tick all the boxes?”  

TD Bank surveyed 1,007 U.S. consumers planning to purchase their first home in 2023 to learn more about their path to homeownership, as well as their thoughts on how prepared they are for the home-buying process amid fluctuating mortgage rates and home prices. 

First-time home buyers remain optimistic

Even as housing prices fluctuate across the U.S., first-time homebuyers in TD Bank’s survey are optimistic about becoming homeowners, with 39% believing now is a good time to buy. 

Many of those who’ve begun the home-buying process are taking steps to prepare, with 48% starting to save money for a down payment. And 85% of survey respondents believe buying a home is a good long-term investment. 

Amid the optimism, first-time homebuyers do have reservations, with 69% worried about the economy and 64% uncertain about their ability to afford a home with rising mortgage rates. 

Six in ten respondents are concerned about their ability to afford a home combined with their other monthly expenses. After all, aside from the likelihood of monthly housing costs surpassing their current rent payments, they also have to consider the strong possibility that their energy bill will increase, especially if their home costs more to heat or cool, and they’re using more water on a daily basis. 

Also, buyers of older homes—or homes built in a hurry—may be faced with the costs of needed repairs, which they (and not their landlord) will be responsible for. And while first-time buyers still see the long-term benefits of buying a home, they may need more time to financially prepare for it.

Mortgage rate hikes have also motivated first-time buyers to build some good financial habits, with 43% of them indicating they’ve started monitoring their credit report or taking steps to raise their credit score, with the goal of reducing the interest rate for their home loan. 

Also, nearly half (48%) have created a homeownership budget to prepare for their first-time home purchase this year. 

Rising rents are driving more consumers toward homeownership

Almost two in five (38%) renters indicated they may delay their homeownership plans and continue renting in 2023. Among those, 30% said their primary reason for doing so is their inability to afford the home they want, largely because of high mortgage rates. 

That said, many respondents indicated the opposite reaction, with rising rents driving them to forge ahead with buying a home. 

Of those respondents not planning to delay their home purchase, 40% said their primary reason for moving forward with it is rising rent prices—which increase the share of their income that does nothing to improve their long-term financial well-being. 

Buyers are making the best of rising mortgage rates

While first-time homebuyers can’t control inflation or rising mortgage rates, some are finding other ways to reduce their homeownership costs. 

Of those planning to become homeowners in 2023, nearly six in ten (59%) say they’re looking for a fixer-upper or a starter home. More than one-third of those (34%) say their reason for this is their search for greater affordability. And more than half (52%) pointed to current market conditions as a factor in their decision. 

After all, once they’ve got the house, they can start planning for necessary repairs and desired upgrades—increasing the home’s value as they build intergenerational wealth. 

Aside from lowering the bar for their first home purchase, first-time buyers are also looking at long-term solutions to offset the current rate environment. More than a quarter of them (27%) plan to refinance their home loan when mortgage rates come down. 

As of yet, that sound advice continues to motivate only a small percentage of first-time homebuyers, with less than a quarter (22%) reaching out to a mortgage lender to learn more and start the process. 

Buyer misconceptions to address

While first-time homebuyers in 2023 face affordability challenges from inflation, limited home supply, and shifting mortgage rates, there are a few misconceptions and knowledge gaps you can address to make the process easier and more affordable. 

1. Know the process—The majority of survey participants (82%) say homeownership is important to them. But it’s equally important for them to learn what they need to know about the home-buying process, including what you can do for them and what to expect and look for when they’re shopping around for a mortgage lender. 
2. Explore your options for down payment assistance—-First-time homebuyers, especially those with low-to-moderate income, have options other homebuyers do not when it comes to making their down payment—which, for 44% of survey respondents is a barrier to buying a first home. For 81% of those with low-to-moderate income (LMI), the affordability of the down payment is one of their top three barriers. But many lenders offer flexible down payment assistance options, allowing these borrowers to make down payments as low as 3% when buying their first home. More than one-third (35%) plan on using a down payment assistance program for their first home purchase.
3. Talk to a mortgage lender early—Talking to a lender can open a buyer’s eyes to the total costs of buying a home, how it will impact their budget, and which first-time homebuyer assistance programs they could qualify for. Among LMI respondents, 82% felt confident or neutral in their understanding of mortgages and home buying. Despite that, nearly half (46%) were unfamiliar with down payment assistance programs. 

TD Bank survey methodology

This report is based on the results of a CARAVAN® survey conducted by Big Village, with responses from 1,007 U.S. adults (ages 18+) who have never owned a home and plan to buy their first in 2023. The CARAVAN® was live from February 13 to March 1, 2023. 

Low-to-moderate-income (LMI) homebuyers are defined as those having a household income within 50% to 80% of the median household income for their state. 

Top takeaways for real estate agents

First-time home buyers determined to buy a home this year may have only a hazy idea of what they can expect during the home-buying process. You as their agent can ascertain the gaps in their knowledge and do what you can to fill them, but they also need to do their due diligence to prepare themselves. 

Show them what you plan to do for them, and help them in their search for a trustworthy and competent mortgage lender to make the process as low-stress and educational as possible. 

Help them join the ranks of homeowners with a deep understanding of what that means—and what they can do to maximize the benefits.