The real estate downturn is opening doors to younger homebuyers
By Elizabeth Sheeran
Sara Knapik always dreamed she'd own a home.
"Ever since I was younger, I always strived for that ultimate goal," said Knapik, a 25 year-old accountant for a Framingham software firm. "A big goal of mine has always been to own a home because it would be a place for come home to myself and whoever I was with, and just something that's mine and that I worked so hard for."
But Knapik spent the early part of her twenties watching real estate prices go up and up, and her goal of home ownership get further out of reach. She gave up on her dream of settling in a big old colonial she and her boyfriend could renovate, thinking perhaps someday she might be able to find a smaller starter home she could afford. Click to see and hear first-time homebuyer stories.
Then came the recession, and the housing bubble burst. In August of this year, Knapik was handed the keys to a four-bedroom Victorian colonial in Warren, Massachusetts.
"It's really exciting," said Knapik, who checked the records and found she could not have afforded the same house just two years ago. "It's your own home and you can do what you want with it. It's really interesting. You find little nooks and crannies around the house. This house was built in the 1880s, so you never know what you're going to run into. We learn something new every day with this house."
The average price of a single-family home in Massachusetts dropped nearly 20 percent between mid-2007 and mid-2009, according to the Massachusetts Association of Realtors. In the South Shore area, the median family home price fell from $355,000 to $285,000.
That's bad news for anyone who already owns a house. But for all those young adults who were forced to watch the real estate run-up from the sidelines, it means the recession has finally given them a chance to get their foot in the door.
"If you can get past all the doom and gloom that you're seeing out there, it's a fantastic time for first-time homebuyers in the state," said Tom Farmer of MassHousing, the state's housing finance authority. He said the agency is on pace for a record year of lending to first-time homebuyers. "If you don't have a home you have to sell, then it's a great time for you. That's the only silver lining in this horrible economic climate."
Sandra Saia, a Burlington-based real estate agent, said almost all her of clients this year have been adults under the age of 30 who are buying their first home. "Finally, these young kids have a chance to get into the market. A lot of these first-time homebuyers a couple of years ago couldn't have done it."
A perfect storm: prices, interest rates and tax credits
Michael DiMella of Charlesgate Realty Boston, who blogs about Boston area real estate, said lower prices aren't the only thing getting younger buyers into the market. DiMella points to "a historical confluence of factors leading people to get into the market at what seems to be the bottom," including prices, historically low interest rates and an $8,000 federal tax credit for first-time homebuyers.
Aaron and Sheila Skowyra, both 28, who just moved into a new three-bedroom house in Weymouth, said low interest rates were as much a factor in their being able to purchase a newly-finished home as were the tax credit and lower prices. "We were locked in under five percent, which is a huge advantage to make payments, to have them that low over the course of 30 years. It really worked out for us," said Aaron Skowyra.
With more homes available for under $300,000, more buyers have been able to take advantage of mortgage rates that have edged downward over the past couple of years, said Stephen LeSaffre, a mortgage originator at The Savings Bank, which operates in 11 communities north of Boston. The bank's first-time homebuyers program usually averages 30 mortgages a year. This year, it closed that many in the first nine months alone.
Buyers today can finance a $275,000 home with income of around $60,000, provided they meet credit requirements and can put together the 11 percent down payment the bank requires to avoid adding private mortgage insurance. Monthly payments would be around $1,300 per month, plus insurance and property taxes.
That's within reach for a lot of young couples if they're each earning about $15 an hour and are already paying rent. Just two years ago, the same house would have cost around $340,000. The price difference alone would have increased the mortgage burden by 25 percent, putting it out of range for thousands of twentysomethings, even before taking into account higher interest rates and a higher down payment.
Many young adults are getting a getting a jumpstart from the tax credit, said Farmer at MassHousing, which sponsors a program to let buyers use the $8,000 for the down payment or other closing costs, and will finance up to 100 percent of a home's value to help low- and moderate-income homebuyers. "Our philosophy is if folks can afford a mortgage without putting 20 percent down, it leaves money in their pocket for the unexpected things that come up with a home."
Saia said the tax credit also makes it easier for younger buyers to consider homes with lower price tags but that may need some work, so they can get into a house instead of a condominium. "Most of them are thinking this is the year to buy a single-family," said Saia. "Most of them would rather have their own little space and are not afraid to do a little work."
Saia last year found a house in Reading for a newly married couple, both 22, for $250,000. "That house needed a lot of work, but it's a decent neighborhood, a decent home, a decent city... any money they can put into it, they'll get their money back."
Not quite a buyers' market
And while prices are lower, Saia says it can't be called a buyers' market, since there's fierce competition for homes priced under $350,000. "They're up against multiple buyers in this price range," she said, citing a house in Wakefield that listed for $339,000. "It was on the market for three hours and I got six offers on it. My phone was ringing off the hook and it was all first-time buyers."
Still, realtors say there are plenty of houses out there for buyers who are willing to look at a lot of homes, and can make a decision quickly when they find the right one. And for all the news about credit drying up, realtors say most young homebuyers with good credit are able to find financing. "Of all the deals I've done with first time homebuyers, I've never had one fall through," said Saia.
At The Savings Bank, senior loan officer Kathleen Beaulieu said would-be buyers frightened by stories of predatory mortgage lenders should know that most community banks have continued to lend "the old fashioned way, with a personal touch, and a paper and pencil. We're not going to give you a loan if in our heart of hearts we don't think you can afford it. The last thing we want to do is to own your home."
Beaulieu said there hasn't been a single foreclosure in the 15-year history of the bank's first-time homebuyer program. Still, the recession has forced lenders to take a harder look at things like work history.
"It was very scary," said Kim Donahue, an attorney who with her husband Matthew recently closed on a house in Lynnfield despite a change in her job status.
"I'm currently laid off. I have a part-time job doing court-appointed work so I do have income, and he's a full-time police officer, so financially we're okay. But it's just an extremely scary undertaking," said Donahue.
Saia said the current crop of first-time homebuyers is going in with their eyes wide open. They can't help it, since many of the entry-level homes they're looking at are on the market because the previous owners couldn't afford to keep them.
But there's nothing like realizing a long-term dream to inspire optimism. "The younger buyers I work with are all pretty confident about the future." said Saia.
"I never thought I'd be able to afford a house," said Ron Tauro, who recently bought a home in Melrose that had been in foreclosure. "I guess thanks to the recession now I have my foot in the market."
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