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A new special report by Inman News reporter Andrea Brambila, "10 Prime Real Estate Markets for First-Time Buyers," identified the 10 metro markets with the greatest share of first-time homebuyers relying on mortgages backed by the Federal Housing Administration (FHA) in 2011.
As might be expected, the markets were more affordable than average—eight out of 10 boasted median sales prices that were less than the national median of $162,000 during the first quarter of 2012.
Half of the 10 markets popular with first-time homebuyers have seen price declines that greater than the 36.2 percent drop from peak experienced by the U.S. as a whole. Nine out of 10 have seen price drops of more than 25 percent.
More ominously for first-time homebuyers—who may put as little as 3.5 percent down when using FHA financing, and start out with little equity in their homes—prices have continued to fall in these markets.
Eight out of 10 of the markets identified by Inman News, including four in California's Central Valley, saw annual price declines during the first quarter of 2012 that exceeded the national average.
Six out of 10 markets popular with first-time homebuyers had higher foreclosure activity rates during the first three months of the year than the national rate, and half had higher unemployment rates in March than the 8.4 percent national rate.
As a group, first-time homebuyers are a bellwether of the real estate industry and the economy as a whole.
"Because of the problems a few years ago, I believe (first-time buyers) are more cautious," said Dorothy Kielty, an agent at Coldwell Banker Gonella Realty in Merced, Calif. where the median price has dropped 71.5 percent from peak. First-timers "want a home that they can afford more easily if one person loses their job or something else (happens). They don't want to be 'house poor'—they want to have money for some fun things."
At $170,000, the Wilmington Del.-Md.-N.J. metro area had the highest median sales price of any market on the list. But the area's 8.4 percent unemployment rate is no higher than average, and Moody's Analytics expects above-average job growth there this year.
Dave Shaw, a 25-year-old information technology worker who decided to buy a home in the Wilmington area after becoming engaged, said he and his fiancé wanted a single-family home "in a nice neighborhood, with a couple of bedrooms and bathrooms where we could raise a few children." They also wanted a home in move-in condition.
"We were basically looking for a house we could stay in for a while, rather than a 'starter' home that we would move out of after a couple of years," Shaw said.
First-time buyers are "looking at pretty much everything, including distressed properties," said Erik Anderson, an agent at Keller Williams Realty Tulare County in Visalia, Calif. where the 18.3 percent unemployment rate in March was more than twice the national average.
While 39 percent of sales in the area during the last three months of 2011 were distressed, many of his clients "get frustrated waiting on a short sale or getting outbid on a foreclosure," Anderson said. "So I do my best to set the right expectations from the beginning and make all options available to them."
The 10 markets, ranked by highest share of first-time-buyer FHA loans as a percentage of total sales in 2011, are:
1. Wilmington, Del.-Md.-N.J.
2. Charleston, W.Va.
3. Visalia-Porterville, Calif.
4. Merced, Calif.
6. Hagerstown-Martinsburg, Md.-W.Va.
8. Minneapolis-St. Paul-Bloomington, Minn.-Wis.
9. Atlanta-Sandy Springs-Marietta, Ga.
10. Camden, N.J.
Access the full report, "10 Prime Real Estate Markets for First-Time Buyers."
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