Vermont Business Magazine California is the toughest state for first-time homebuyers, according to a new Bankrate.com report, and Vermont is surprisinglyone of the best. Vermont is the highest ranked state East of the Mississippi at number nine.Hawaii and New York round out the three most difficult states to buy your first home. Iowa is best. The data study evaluated all 50 USstates based on several factors pertaining to young adults, including home affordability relative to median income, credit availability, unemployment, market tightness and homeownership percentage among under-35 households.
California ranks as the toughest state for first-time homebuyers for several reasons, including low home affordability (#49), availability (#49) and U-35 homeownership percentage (#49), as well as high millennial unemployment (#41).
Iowa, on the other hand, is the easiest state due in large part to the most affordable home prices in the country. The Hawkeye State also graded highlyfor U-35 homeownership (#2) and millennial employment (#10). Utah, Minnesota, Kansas and Missouri comprise the rest of the five easiest states for first-time homebuyers.
“Tight market conditions and unaffordably high prices really plague what many young Americans feel are the most desirable places to put down roots,” said Bankrate.com analyst Claes Bell. “On the other hand, the availability of FHA loans that allow down payments of as little as 3.5% may make it easier to buy a home in high-priced markets than you think.”
| 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 |
To measure how well different states accommodate first-time buyers, Bankrate focused on five major criteria:
- Housing affordability
- The job market for young adults
- Housing market tightness
- Credit availability
- Homeownership among the under-35 crowd
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, Bankrate useddata from millions of mortgage applications available under the Home Mortgage Disclosure Act. Specifically, it zeroed in on rejected applications.
Again, the differences between the states could be stark. In Alaska, it 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.
Steady work a must
Successfully buying (and holding onto) a home is highly dependent on having steady work, so Bankrate incorporated 2016 government employment data into its ranking. Bankrate 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.
Bankrate 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, it 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, Bankrate 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.
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."
About Bankrate.com:
Bankrate.com provides consumers with the expert advice and tools needed to succeed throughout life's financial journey. For over two decades, Bankrate.com has been a leading personal finance destination.The company offers award-winning editorial content, competitive rate information, and calculators and tools across multiple categories, including mortgages, deposits, credit cards, retirement, automobile loans, and taxes. Bankrate aggregates rate information from over 4,800 institutions on more than 300 financial products. With coverage of over 600 local markets, Bankrate generates rate tables in all 50 U.S. states. Bankrate develops and provides web services to more than 100 cobranded websites with online partners, including some of the most trusted and frequently visited personal finance sites on the internet, such as Comcast, Yahoo!, CNBC and Bloomberg.In addition, Bankrate licenses editorial content to more than 500 newspapers on a daily basis including The Wall Street Journal, USAToday, TheNew York Timesand TheLos Angeles Times.
