First-Time Home Buyers' Equity and Savings Over a 30-Year Term

Latest data reported from the REALTORS® Confidence Index (RCI) survey shows that first-time home buyers accounted for 35% of existing home sales with the median days to close being 30 days (REALTOR® Confidence Index).

"The share of first-time buyers increased in March through June—right into the heart of the pandemic period and the surge in unemployment—and is now trending higher than the 29% to 32% average in past years since 2012."

First-time home buyers are drawn in by the low interest rates which have fallen to 2.98% on a 30-year-fixed mortgage. The highest number of first-time home buyers was in 2009. This was due to the American Recovery and Reinvestment Act which gave first time home buyers an "$8,000 tax credit - or 10% of the home's value, whichever was lower" (CNN Money). This was a huge incentive as it was refundable thus aiding in housing recovery due to the increase of renters after the 2008 recession (Trulia, Jonathan Garber). Fast forward to June 2020, 49% of buyers were renting before purchasing a home thereby demonstrating their conscious choice to take advantage of today's market even though 77% of first-time home buyers put less than 20% for down payment (REALTOR® Confidence Index). Home ownership is a valuable asset as it allows owners to gain equity due to the appreciation of their home and save money in comparison to rent.

Let's consider a single-family home worth $298,600 which is the median home price today. If you put down 20%, your 30-year monthly payment would be $1,036 which is below the average rent of $1,045. Keep in mind that if it's a fixed interest rate, your monthly payments won't change in comparison to rent which has no guarantee. This might not seem like a significant amount at first glance. Yes, in a year you will save $107, but over the term of 30 years you will save an average of $177,500 (Cororaton, Scholastica (Gay))!! Wow!! By then you would have built significant equity of $165,521 considering your home was purchased in 1989 and it appreciated 30 years (Cororaton, Scholastica (Gay)).

Summary

These two factors are an important consideration for current renters or future first-time home buyers. After all, first-time home buyers are crucial to the cycle of real estate as they continue to sustain our housing market. In the midst of COVID-19 home ownership allows for accumulation of wealth due to the savings in comparison to rent after home appreciation.