Photograph by Kathy De La Torre
Jim Meech, of Alain Pinel Realtors in Los Gatos, recommends that first-time homebuyers get their financial house in order before they apply for a mortgage. Buyers should make sure to pay their bills on time and start a savings plan.
Young people seek the American Dream
By Jean Newton
Young people seeking the American dream of owning their own home make up a record number of first-time homebuyers. With an astounding 52 percent of entry-level buyers between the ages of 24 and 34, and an additional 11 percent under the age of 25, first-time home buyers accounted for 42 percent of all home sales over the last few years.
According to the 2000 National Association of Realtor's Profile of Home Buyers and Sellers, young people--buying their first home with a median age of 32--make up a significant part of today's housing market.
"The overall health of the housing industry depends on this critical segment of the market. Without this strong level of young entry-level buyers, people would be unable to sell their existing homes to meet growing family needs, or trade down to smaller, easier-to-maintain properties, as lifestyle preferences change," said Dennis Cronk, 2000 president for the National Association of Realtors.
In the nationwide survey, a typical first time homebuyer earned a median income of $49, 700 and purchased a starter home costing $104,000 with a down payment of $5000 (4.8 percent). Married couples accounted for 55 percent of first time home buyers, while 22 percent are single women and 12 percent are single men.
Nationally, first-time buyers are 12 years younger than the typical repeat buyer and are more apt to use technology to search for a home. They are also more ethnically diverse with the foreign-born population accounting for more than 10 percent of U.S. households, up from less than 8 percent 10 years ago.
When it comes to housing costs and salaries, Silicon Valley ranks in a league of its own. Silicon Valley Realtors agree that the average first-time buyers fit the national criteria for age, with most falling in the late 20s and early 30 year range. However, the high-tech boom in the valley also means first-time buyers tend to have higher incomes than the rest of the nation and increased housing costs, as well.
"First-time homebuyers can expect to pay $700,000 to $800,000 or more in the Los Gatos and Saratoga areas for a single family home. In addition to considering a condo or town house as a way to get into the market, it's common for first-time buyers to move a little farther out, like Gilroy, for instance, so they can live more cheaply. The problem is that values are coming up in these areas, too, so even farther out has become a much smaller advantage," said Jim Meech, a Realtor with Alan Pinel in Los Gatos who specializes in first-time home buyers.
Two paychecks are often necessary to become a homeowner in Silicon Valley and coming up with a down payment can be one of the biggest challenges for a first-time homebuyer.
"It's extremely hard to buy here with just one paycheck and even though potential homebuyers have good income, they often don't have enough savings for the down payment. First-time buyers should look for creative ways to get that down payment. Options include getting help from parents, grandparents or tapping into a 401k," said Cristina Page, a Realtor with Coldwell Banker of Palo Alto.
Realtor Judy Jarvis Ellis of Alan Pinel in Palo Alto defines first-time homebuyers in Silicon Valley as affluent, usually making well over six figures in combined income. She also finds them to be savvy when it comes to how they allocate their funds and usually aware that it's not always prudent to expend every dollar with their purchase.
"I attribute this to their level of education and intelligence which leads them to research prices in the local areas. These buyers tend to research on the Internet before face to face contact with an agent," said Ellis.
The NAR nationwide survey found that potential homeowners educate themselves about the housing market, buying process and investment considerations at their own pace and convenience on the Internet. In fact, 27 percent of home buyers now shop for a home online--an 18 percent increase in only four years. Young buyers now have instant access to information, unlike when their parents first entered the housing market. Although four out of 10 homebuyers use the Internet to educate themselves about the real estate market, many first-time buyers don't understand the financial process associated with buying a home.
"Most first-time buyers find a house and think that's it. What they don't realize is that you are not just purchasing a home; you are also purchasing a loan. There's a lot more to the process. You need a team of professionals to help you," said Los Gatos Realtor Jim Meech, whose experience also includes financial planning.
Meech recommends setting up a "plan of attack" to get finances in order. First-time buyers need to take a look at their credit, make sure to pay bills on time and start a savings plan. Without good credit potential, buyers can't get a loan. Since there are many financial options available for first-time buyers, professional help is a must.
"The reality is that it's often a 30 to 90 day process, which can sometimes stretch into a two year process, if you need to figure out how to arrange your finances in order to get into the market. First-time buyers need a Realtor who is experienced and can coordinate the whole process--from ordering inspections to recommending which professionals you need to consult to complete the deal," Meech said.
Realtors are a good resource for finding everything, from gardeners to housecleaners to accountants. Often Meech says he ends up in the role of a marriage counselor.
"Sometimes young couples, in the high-tech field in particular, come to buy their lifelong dream and it isn't what they thought it would be. So sometimes we play marriage counselor to help first-time buyers understand that often the first home is a stepping stone to the next home. In reality, it's probably two or three steps," Meech said.
Homeownership is not only an investment that generates tax savings and the ability to build equity over time, it's a bricks and mortar investment that requires some patience and the professional expertise to make it happen. Managing the homebuying process is critical and finding the right Realtor to help is key. In addition to researching the Internet, open houses are a good way to get an overview of the market and to select an agent. Potential homebuyers seeking the American dream can also find a Realtor by checking out www.siliconvalley-realtors.org.
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