Southern Comfort: First-Time Home Buyers Will Find More Favorable Conditions in the South

• Markets with a healthy balance of affordable home prices, low competition and strong growth prospects will be most attractive to budget-conscious, first-time home buyers.
• Markets most-favorable for first-time buyers include Memphis, Oklahoma City and Orlando.
• Areas least-favorable for first-time buyers include the San Francisco Bay Area, Southern California and the Northeast.

First-time home buyers looking for friendly market conditions would do well to avoid the busy, headline-making markets in the West and the Northeast, and focus their search instead on homes in slower-moving, more sedate Southern and Midwestern metros.

Often budget-constrained, first-time home buyers in particular are typically better-served by markets in which both competition is less fierce (and bidding wars – and the rapid escalation in prices that follows – less common) and affordable options are more abundant. Making a smart financial decision also matters, so it’s important that the financial advantages of buying soon outweigh the shorter-term savings of renting, and that expected home value appreciation is strong.

These more-favorable markets tend to be located in the South and Midwest, according to Zillow’s First-Time Home Buyer Index. Less-affordable and faster-moving markets on the West Coast and in the Northeast, while potentially offering any number of other advantages including access to good jobs and world-class amenities, are less friendly to first-time home buyers.

Among the 50 largest U.S. metros included in this analysis, the most- and least-favorable markets for first-time buyers are:

Methodology

The First-Time Home Buyer Index weighs five metrics in a given market:

• Median home values, as measured by the Zillow Home Value Index: Markets with lower home values score higher because of their relative affordability.
• The market’s Zillow Home Value Forecast: Markets with stronger forecasted growth in home values score better, as healthy forecasts indicate a good start for buyers looking to grow equity and wealth.
• The inventory-to-household ratio: Markets with more inventory per household score higher, in an effort to measure available supply for buyers.
• The market’s share of listings with price cuts: Markets with more listings with at least one price cut are assumed to be somewhat less competitive, taking some of the pressure of first-time buyers.
• The local buy-rent Breakeven Horizon:[1] Markets with a shorter Breakeven Horizon demonstrate a stronger financial incentive for local residents to buy instead of rent.

These five metrics are ordered, and metros are scored on each feature on a scale from 0 to 10.[2] These five scores are then averaged, and the average is re-scaled to range from 0 to 10. The higher the score, the better a market is judged to be for first-time home buyers.

Use the interactive tool below to explore conditions for first-time buyers in your local market and markets nationwide.

Related:

• Q4 2016 Breakeven Horizon: Why it May Start Taking Longer to Profit on a Home Purchase in Pricey Markets
• Down Payment the Top Hurdle Holding Back Would-Be Home Buyers
• Without Spending More, Some Renters Could Likely Afford to Buy Above-Average Homes

 

[1] Zillow’s Breakeven Horizon measures the length of time, in years, in which a buyer would have to live in a home to make it more financially advantageous to buy it than rent it. These timelines are currently influenced by very low mortgage interest rates, among other factors.

[2] Using a uniform distribution.