Young Buyers Want New Homes, But Economics Keep Them Out.
According to a recent survey by Trulia, 2 in 5 homebuyers strongly or somewhat prefer a new home to an existing one. The added new home features and convenience come at a price. New homes typically cost 20% than existing homes with similar attributes in the same zip code. However, almost half of those who strongly prefer a new home are willing to pay the added cost, if they can.
Many buyers opt for their second choice: an existing home as a starter home. They plan to trade up in a few years to a more ideal residence. But the expense of rehabilitating an existing home and the selling costs may diminish the amount of home equity that homeowners earn from appreciation. If they are relying on the proceeds that they clear from the sale of their current home to finance the down payment on the new home, potential buyers may have to wait longer than they imagined to trade up.
This is especially true of Millennials. Millennials aged 18-34 are the demographic group most likely to strongly prefer a new home. Yet they are the least likely to buy a home, much less one at a price premium. Why? Not because they don’t want to. The myth that Millennials aren’t interested in home ownership has been thoroughly debunked by recent research. Debt, and a preference for urban locations are reasons commonly cited as explaining the declining rates of homeownership among this group. New homes, especially in in-fill or close-in city developments satisfy the demand of Millennials and all first-time homebuyers, offering the urban convenience and amenities that buyers desire while affording modern features and customization opportunities. Starter home or new home, it’s the economics of homebuying–strict lending standards and lack of a down payment– that challenge these potential buyers. Competition from all-cash bidders for properties in desirable city locations has squeezed many potential millennial buyers out of the market.
As for the financial challenges of buying a new home, new equity finance options offer a solution. FirstREX’s REX HomeBuyer program, for example, can provide a significant portion of the down payment required on a new home purchase. Buyers don’t need to be discouraged by bidding up of the few smaller, less expensive existing homes by all-cash investors. Instead, they can leverage a REX HomeBuyer to get into the home they really want, right now.
With the investment from FirstREX, buyers can put less down, borrow less, have a smaller monthly payment and reserve cash they would have used for a down payment. That money can come in handy as a cash reserve or to furnish the home. REX HomeBuyer isn’t a home equity line of credit or second home loan. There’s no interest or monthly payments on the down payment funds provided. REX HomeBuyer is an equity investment. Through the program, FirstREX invests in the home with the buyer who’ll share part of the change in value when they eventually decide to sell. If the value of the home increases, FirstREX will earn a return and so will the homeowner. If the value of the home decreases, FirstREX will typically incur a loss and this will reduce the homeowner’s loss. Either way, homebuyers benefit by getting the home they want today.
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