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2017-03-08 10:24:12
Toughest & Easiest States for 1st Time Home Buyers

We pick the toughest and easiest states for first-time homebuyers

 
Best & Worst States For Homebuyers
Bankrate.com's survey results for the best and worst states for homebuyers.
  

For millennials striving to succeed at 'adulting,' buying a home is a common goal. But millennials now hitting prime years for that first home purchase may have to stick to smaller, interior states to find a hospitable homebuying climate, according to a new Bankrate analysis.

Couple hugging on couch in living room | Oliver Rossi/Getty Images

We found California, New York, Texas, Colorado, Oregon and Massachusetts -- states with large metro areas that are attracting young millennials -- are among the 10 worst states for first-time homebuyers.

The best-performing states in our ranking are mostly Western and Midwestern states with varying degrees of urbanization. Iowa, Utah and Minnesota make up the top three.

Rank State Total score Housing affordability Job market for young adults Housing market tightness Credit availability Homeownership among millennials
1 Iowa 40.32 10.00 7.55 5.60 7.53 9.64
2 Utah 40.16 6.55 9.33 5.88 8.85 9.55
3 Minnesota 39.60 8.66 7.85 3.75 9.34 10.00
4 Kansas 38.11 8.18 7.67 7.02 8.33 6.91
5 Missouri 38.10 8.71 6.01 8.26 7.67 7.45
6 North Dakota 37.66 8.39 10.00 4.14 8.31 6.82
7 South Dakota 37.50 8.21 9.48 2.31 8.73 8.77
8 Wyoming 36.91 7.94 7.70 4.59 8.12 8.57
9 Vermont 36.34 8.51 7.82 8.55 6.00 5.46
10 Nebraska 36.33 9.68 8.71 1.65 8.95 7.33
11 Idaho 36.32 6.78 6.26 7.90 7.73 7.66
12 Indiana 35.92 9.23 4.29 6.65 7.56 8.19
13 Montana 35.51 5.86 6.66 9.11 8.19 5.69
14 Oklahoma 35.18 9.41 6.07 7.07 5.60 7.02
15 Alaska 34.70 7.22 3.59 8.12 10.00 5.77
16 New Hampshire 34.68 8.42 8.65 4.36 6.11 7.14
17 Michigan 34.61 9.65 3.13 7.24 6.19 8.40
18 Wisconsin 34.51 9.73 4.85 6.47 6.79 6.66
19 Ohio 34.10 9.95 5.31 5.25 7.32 6.27
20 Pennsylvania 34.05 9.28 4.02 6.04 7.48 7.23
21 Illinois 33.78 9.08 4.23 7.23 6.91 6.33
22 Delaware 33.52 7.06 4.48 6.92 7.33 7.73
23 Arkansas 33.31 8.64 5.46 8.81 3.89 6.51
24 Arizona 33.25 6.52 4.85 9.31 7.98 4.59
25 Maryland 32.52 7.96 5.12 5.08 7.98 6.37
26 Virginia 32.04 7.12 6.13 5.06 8.30 5.43
27 Connecticut 31.88 8.39 2.48 8.30 7.47 5.24
28 Maine 31.80 7.32 3.96 7.74 5.10 7.68
29 Tennessee 30.85 8.16 3.44 7.02 5.87 6.37
30 North Carolina 29.42 7.19 3.68 7.04 6.36 5.14
31 New Jersey 29.11 7.52 4.11 6.24 6.82 4.42
32 Alabama 29.06 8.57 0.00 9.84 3.43 7.22
33 Georgia 28.81 7.81 2.30 7.59 6.30 4.81
34 Kentucky 28.52 9.20 3.65 5.38 2.75 7.54
35 New Mexico 28.28 6.57 1.81 10.00 3.25 6.64
36 Washington 27.66 5.55 5.34 5.00 7.91 3.85
37 Florida 27.42 7.00 4.14 8.79 3.73 3.76
38 Nevada 27.02 6.11 2.67 7.21 7.28 3.76
39 South Carolina 26.55 7.34 2.73 6.47 3.28 6.73
40 West Virginia 26.29 9.86 1.35 6.67 0.00 8.42
41 Massachusetts 26.06 5.99 6.17 1.96 8.65 3.30
42 Oregon 25.76 4.56 5.28 4.83 8.55 2.55
43 Colorado 25.71 5.00 6.93 0.00 8.47 5.31
44 Texas 25.33 6.92 5.95 1.66 6.18 4.62
45 Rhode Island 25.18 7.00 1.84 5.22 7.94 3.17
46 Mississippi 24.56 5.89 2.18 8.19 1.13 7.17
47 Louisiana 23.96 8.11 3.28 3.18 2.69 6.70
48 New York 23.12 6.88 4.29 4.78 5.84 1.33
49 Hawaii 20.16 0.00 7.33 4.59 8.24 0.00
50 California 13.67 1.25 2.76 1.25 7.23 1.17

How we ranked the states

To measure how well different states accommodate first-time buyers, we focused on five major criteria:

  1. Housing affordability
  2. The job market for young adults
  3. Housing market tightness
  4. Credit availability
  5. Homeownership among the under-35 crowd

 

 

Source: Bankrate

RATE SEARCH: Ready to buy a home of your own? Get prequalified for a mortgage today.


Affordability tricky in popular states

Affordability is a huge issue for first-time buyers, especially in states with large and growing metro areas, says Rolf Pendall, co-director of the Metropolitan Housing and Communities Policy Center at the Urban Institute.

'When you have a state like California where the housing prices are really high and the rental housing is also really expensive, unless you have access to wealth from some source that's not your job, it's going to be really hard for you to amass enough of a down payment, and also the kind of credit that you need to get into the housing market,' Pendall says.

Would-be homebuyers in expensive markets are caught in a bind. The only way to get away from surging rents is to save up a down payment, but the rising rents keep them from saving.

To identify markets where affordability obstacles are highest, we used data on median home sale prices from CoreLogic and the National Association of Realtors, combined with U.S. Census five-year income estimates for households ages 25 to 44.

What we found was stunning: Principal and interest payments in the least affordable states consumed more than a third of household income, versus just 13 percent in the most affordable states.

  • Top three states for affordability: Iowa, Ohio, West Virginia
  • Bottom three: Hawaii, California, Oregon

Loans hard to come by in some states

Qualifying for a mortgage can be tough for millennials with relatively thin credit files compared to their older peers and no home equity to roll into down payments.

To find out how access to home financing varies across states, we turned to data from millions of mortgage applications available under the Home Mortgage Disclosure Act. Specifically, we zeroed in on rejected applications.

Again, the differences between the states could be stark. In Alaska, we found fewer than 5 percent of applications were turned down. In West Virginia, denials were three times as high.

One way to fight back: Start working on financing early in the home buying process and think local, says Tom Springer, a professor of real estate at Clemson University.

'Build a relationship with a physical, on-the-ground lender,' he says.

  • Top three states for credit availability: Alaska, Minnesota, Nebraska.
  • Bottom three: West Virginia, Mississippi, Louisiana.

RATE SEARCH: Find the best deal on a mortgage today.


Steady work a must

Successfully buying (and holding onto) a home is highly dependent on having steady work, so we incorporated 2016 government employment data into our ranking. We gave states with low unemployment rates for workers in the prime first-time homebuyer demographic of 25-34 the highest marks.

  • Top three states for 25-34 employment: North Dakota, South Dakota, Utah.
  • Bottom three: Alabama, West Virginia, New Mexico.

Tight markets aren't your friend

Tight markets, where the pool of available homes is small and sellers typically get multiple offers, tend to work against young first-time buyers trying to break in.

Lawrence Yun, chief economist at the National Association of Realtors, cites Seattle, Denver and Portland, Oregon, as markets with an 'acute inventory shortage.'

In many cases, 'there's a bidding war among the buyers, certainly putting millennials at a disadvantage,' he says.

We used two measures derived from Census data to assess how tight the housing market is in each state. The first is the percentage of vacant homes for sale or rent.

For the second, we took the spread between the growth rate in housing stock between 2010 and 2015 and combined it with the percentage change in the number of households between 2010 and 2015. The result indicates whether homebuilders in a state are keeping up with demand for new housing.

'The places that have the highest rents and the highest prices tend also to be the places where because of constraints of geography and regulations, builders can't respond to rising prices by adding a lot more housing,' says Pendall.

  • Three states with least tight housing markets: Alaska, Vermont, New Mexico.
  • Three tightest: Colorado, California, Texas.

Millennials frozen out of popular markets

Ultimately the best measure of which states provide a welcoming environment for first-time buyers may be looking at how many younger households have actually managed to do it.

Using Census data, we calculated the percentage of households under 35 living in owner-occupied housing. Again, there was a large range, with under a quarter of young households in Hawaii, California and New York living in homes they own, compared to more than 40 percent that do in Minnesota, Iowa and six other states.

'It is the youngest adults who are taking the biggest hit downward in ownership rate,' Yun says, in part because of the fallout from the Great Recession.

  • Top three states for millennial homeowners: Minnesota, Iowa, Utah.
  • Bottom three: Hawaii, California, New York.

COOL TOOL: Use Bankrate's mortgage calculator to find out how much house you can afford.


Better times ahead?

The news isn't all bad for first-time homebuyers. Mortgage rates are still very low by historical standards, allowing millennials to afford pricier homes than previous generations of first-time buyers.

Plus, first-time buyers have access to Federal Housing Administration (FHA) loans that allow them to make a down payment of as little as 3.5 percent of the purchase price.  

Yun says young professionals who aspire to homeownership should seriously consider looking for work in smaller 'second-tier' markets that offer amenities like walkability and restaurants at a much lower cost.

If that's not an option, would-be first-time buyers always have the option of staying on the sidelines -- for now.

'Hopefully with an improving economy, their wage rates begin to rise, and with homebuilders able to build more homes, hopefully that will contain some of the price growth,' Yun says, 'giving a better chance for millennials in the future.'

 

 

 
 
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