If you’re looking to set down roots and buy a home, know that with 26% of home purchases last year made by first-time buyers, a new report on 2023’s Best & Worst Cities for First-Time Home Buyers, gives excellent insight into where you may or may not want to buy if you’re a first-time buyer.

Most Favorable Markets

To determine the most favorable housing markets for first-time buyers, WalletHub took the pulse of real estate in 300 cities of varying sizes using 22 key metrics. The data set ranges from housing affordability to real-estate tax rate to property-crime rate.

Best Cities for First-Time Home BuyersWorst Cities for First-Time Home Buyers
1. Palm Bay, FL291. Daly City, CA
2. Cape Coral, FL292. Burbank, CA
3. Tampa, FL293. San Mateo, CA
4. Port St. Lucie, FL294. Oakland, CA
5. Orlando, FL295. San Francisco, CA
6. Surprise, AZ296. Los Angeles, CA
7. Gilbert, AZ297. Santa Barbara, CA
8. Boise, ID298. Anchorage, AK
9. Chesapeake, VA299. Santa Monica, CA
10. Henderson, NV300. Berkeley, CA

Best vs. Worst

  • Springfield, Illinois, has the most affordable housing (median house price divided by median annual household income), with a ratio of 1.67, which is 17.5 times cheaper than Santa Barbara, California, the city with the least affordable housing, with a ratio of 29.24.
  • Honolulu has the lowest real-estate tax rate, 0.30 percent, which is 12 times lower than in Waterbury, Connecticut, the city with the highest at 3.59 percent.
  • Flint, Michigan, has the highest rent-to-price ratio, 26.64 percent, which is 16 times higher than Santa Monica, California, the city with the lowest at 1.66 percent.
  • Baton Rouge, Louisiana, has the lowest total home-energy cost per month, $100.84, which is 3.6 times lower than Bakersfield, California, the city with the highest at $360.76.

What to Consider in a Neighborhood

“A primary consideration should be how long they intend to stay in the home. If it is for less than five years, then think about amenities and services that meet their current lifestyle – a nearby collection of restaurants, shopping, recreational activities, and perhaps proximity to work may all be important. If it is for more than five years, then consider potential lifestyle changes over time – if raising a family is anticipated, the quality of schools, parks, and trails, and family amenities may be more critical,” said Brad Segal, lecturer, University of Colorado Denver; president, Progressive Urban Management Associates.

“There are a number of factors to consider. Home buying can be an emotional decision, especially for first-time buyers. It is important to keep a business consideration balanced with the excitement of the first-time purchase. Buyers need to remember the full cost of ownership, not just the payment, taxes, and insurance that are escrowed but also anticipated upgrades and maintenance, as well as income tax savings. Then, rather than just following standard guidance on the share of income dedicated to homeownership, they should develop a personal budget to confirm that the expenses fit within their desired lifestyle. Finally, their first home is not likely their last, and they should pick a home and an area where the resale value is likely to be sustained,” said Kevin J. Boyle, director, of Blackwood Department of Real Estate, Virginia Polytechnic Institute and State University.

Long-lasting Effects of Current Economic Downturn

“Yes, there are likely to be long-lasting effects. Interest rates are likely to remain elevated for the foreseeable future, providing few opportunities to refinance anytime soon. Home price appreciation is also expected to slow down, particularly in non-luxury markets, making refinancing more difficult,” said Bennie D. Waller, faculty fellow, University of Alabama; director, Center for Financial Responsibility, Longwood University.

“The Federal Reserve (Fed) has indicated there may be another rate increase that will translate into higher mortgage rates, and inflation is slowing. It is unlikely that interest rates will drop shortly, nor will construction costs decrease substantially. While interest rates are higher than they were a short time ago before to the recent Fed actions, interest rates had been declining for about four decades, and first-time homebuyers have bought homes at rates higher than the current rates. The challenge is the cost of housing, and first-time homebuyers need to focus on more aggressive saving for their down payment and perhaps reduce their expectations on the size and amenities of the home to make their entry into the market affordable,” Boyle added.

Federal, State, and Local Policymakers Input

The top policy I would recommend is to regulate how institutional investors (i.e., Wall Street) are buying homes throughout the country. In many markets, big investment companies are gobbling up 25% of homes and then bundling them into investments. This phenomenon is taking homes off the market for first-time homebuyers, putting upward pressure on prices, and creating zero utility in the marketplace other than further enriching a small number of large investment firms. A second policy idea is to make it easier for fractional ownership of homes – think cooperatives and other mechanisms that allow non-related people to share in homeownership,” Segal said.

“Policies that allow for higher density and infill can create housing opportunities and expand supply, which will take the pressure off prices. A limiting factor has been aging infrastructure where water and sewer systems cannot support increased demand. These services are often priced at a cost to operate and do not support the cost of maintaining and upgrading the systems. Increasing rates to support upgrading systems can be helpful now and in the long run. Additionally, establishing a program where savings for down payments are not subject to income taxes, like college savings plans, for first-time homebuyers can create an extra incentive to save and accelerate the accumulation of the necessary down payment,” Boyle added.

To view the full report and your city’s rank, please visit here.
Source: WalletHub