Agent advice for first time homebuyers trying to enter market

12 Replies

I have some clients who are first time home-buyers who have done an amazing job to get to a position to qualify, here in Denver, Colorado. Unfortunately, since we started looking last summer, prices have skyrocketed. They are looking for 3 bedrooms, driving distance to U-hills where they work, no HOA, and a price point under $350k. We have looked a lot in Aurora, but they don't want a fixer upper.

1) Any advice for first time home buyers with this criteria at this current state of the market?

2) Any suggestions for secret pockets I am missing?

Thanks!

I've been using cash offers to take down homes for my clients. Barring that, I wish you luck. That price point is BRUTAL (well most price points are) at the moment. 

What about a townhome with a small HOA? Tell them to move in a year and keep it as a rental.

@Candice De  

I think @Matt M. has a good point. If they have been working hard to qualify, 350K is their true max (what the bank says they can afford), and the market is this hot, their goal may not be realistic. I always tell clients they cannot get everything they want, but to choose 3 make-or-break criteria. If it's >$350K, 3 BR, and near U-Hills, a SFR may not be in the cards.

I wonder if advising them to consider a condo or townhouse may actually be good advice for them? It gets them in the market for both appreciation and to build equity. A big cause of the last housing crisis was homeowners would could not pay their mortgage (along with lenders, etc who took advantage of them and sold them a bill of goods), so I don't think it's wise to reach beyond their budget and bank on an appreciation play. It's both wishful thinking and even if fulfilled, the potential home value has to be sold to be realized.

Now, that being said, I don't know when you started to look in the summer, but middle of winter is historically the bottom of inventory. The pandemic buying rush has us 50% below last year's low winter inventory. My guess is that things will start to pick up and homes will likely come on the market, as we move into the listing season, out of the pandemic and beyond the election. I may be wrong. More than anything, don't stop looking. (I mean they started looking in the middle of a pandemic!) Be patient, and see what comes this spring. It's time in the market that matters (part of the point I was trying to make above). Leaving the market is probably the worst thing they could do.

@Matt M. I like that long game strategy, so maybe I will try to see if we can look further down the road.  But yes, cash seems like the only real option these days!

@Chris Freeburg I agree that staying within their means is important, regardless of the market, and yet owning and getting in is always the best long term strategy.  I hope you are right that the inventory will pick up!  Thanks for the responses!

I'm trying to use the info in this thread for my personal use.  I'm moving to this area for a new job and would like to invest at the same time.  

My concern though, is that there is a potential bubble in the Denver/Springs area that will pop 12-18 months after I move there.  Will prices come back down after inventory hits the market in the spring, or should I just wait until 2022 to buy?

@Caleb Andrea the spring is usually the hottest market time. IMO you can’t time the market, if you are in it for the long haul, (5,10,20,30 years) the biggest thing is to just get in. It doesn’t really matter if you get in at the current peak high, the high in 10 years will be higher than it is now.

Base your decision on what’s right for you, if you are ready to move now just do it. Everything else will work itself out.

Thank you @Chad Rocke, this is great advice and what I have heard from some of my friends.  I guess just because it's not what you want to hear, doesn't mean it isn't good advice.

I will get to studying up on Denver and the Springs area so that when it is time for me to move, I will know what a good/bad deal looks like.

Originally posted by @Caleb Andrea :

I'm trying to use the info in this thread for my personal use.  I'm moving to this area for a new job and would like to invest at the same time.  

My concern though, is that there is a potential bubble in the Denver/Springs area that will pop 12-18 months after I move there.  Will prices come back down after inventory hits the market in the spring, or should I just wait until 2022 to buy?

I've got posts going back 5+ years on BP talking about the bubble here. It ain't happening. Too many people are moving here and continue to move here. My friends that waited have now effectively been priced out of the market. Prices will jump this year, and the number will be shocking. There won't be enough inventory to feed the demand at all. We need 20,000 homes on the market. Right now, we are running less than 2,000!! 

Buy now. 

 

@Caleb Andrea I don't believe there is a bubble in Denver, the metrics show Denver appreciates on average 6% per year the last 40 years, and that includes the downturn of 2008-2010.  

It is just a little tougher right now since the inventory is so low and rates are low too, so once inventory goes back up in the spring and summer, you will find a deal that works for you. Also, to succeed in Denver, you have to be a little more creative than the average investor. For example, rent by room is a fantastic strategy since people are willing to pay $700-$950 per room depending on the size and whether it is a shared bathroom or not.   

@Matt M. , no bubble, check. 
It also sounds like if I have to move there this spring, I’ll have to be very aggressive when making any offers. 

@jeff 

@Jeff White , this point about renting out rooms is interesting and crazy!  I would usually only think room letting would be something you would see right around college campuses, but for those prices we are talking about single professionals staying light and mobile. 

When it comes to pricing and inventory trends this year, should I expect it will be the same an hour radius around Denver and all the way down to the Springs?

@Candice De I am in a similar boat as your clients. I was originally approved for a loan of up to $360k as my max ( +/- depending on property taxes). @Bridget Brazelton recommended that I reach out to a lender to see if I qualified for their program -- you can have a tenant sign a lease and use 100% of that money towards your monthly income. I went from qualifying for $360k to $420k!

I am still searching for a home but something to consider if your clients are willing to house hack or have a little wiggle room in their budget. There are some lenders in the area that offer cash FOR your buyers as well. I have been put on a waitlist for this program but another potential option. Good luck!

@Kayla Govier good to know, and congrats! Hope your search goes well with the news flexibility! My clients aren’t looking for an investment, but that is a good thing to keep in mind. What lender did you use?