The four least favorable markets in the U.S. for first-time homebuyers are found in California, according to a recent Zillow analysis. They are:

  1. San Francisco;
  2. San Jose;
  3. Los Angeles; and
  4. San Diego.

Zillow’s metric weighs current and forecasted home values, for sale inventory, price cuts and the breakeven horizon for buying versus renting.

Related article:

Californians need to own longer for buying to make financial sense

While California’s housing markets are relatively difficult for first-time homebuyers to break into, some metros are better than others. California markets more favorable to first-time homebuyers are:

These less expensive, inland regions have more homes for sale in the typical first-time homebuyer’s price range. They also have shorter breakeven horizons, meaning buying pays off more quickly than renting compared to other areas of the expensive state.

For instance, in Riverside it takes about two-and-a-half years for buying to pay off compared to renting. In nearby San Diego, it takes four-and-a-half years for buying to make more financial sense than renting.

A shift in the wrong direction

As demographic influences wax and wane, the average California homeownership rate has drifted downward. This isn’t due to a disinterest in homeownership from today’s young adults. Rather, California’s shrinking homeownership rate stems from the unique challenges facing would-be first-time homebuyers.

First-time homebuyers are typically made up of members of the 25-34 year-old crowd. In 2017, this group is edging older, as renters are forced to save for longer to qualify for higher and higher home prices.

This saving is complicated by constantly increasing rents, which are not reflected in equal income increases. In fact, the average renter in California’s expensive coastal metros now pays 40%-50% of their income on rent. With all that money spent on housing, little is left over to put towards a down payment.

Historically high levels of student debt also push back the ability of struggling first-time buyers to qualify for a mortgage.

Pair these onerous obstacles with this generation’s delayed entry into the labor force following the job-decimating Great Recession, and it’s no wonder first-time homebuyers are toiling to enter the ranks of ownership — especially in California’s high-cost housing market.

The solution is more housing. However, new residential construction actually slowed in California during 2016, despite historically low rental vacancy rates and home inventory for sale.

The good news: agents and brokers aren’t relegated to waiting around for their local market to become friendlier to first-time homebuyers. Real estate professionals can attend local city council meetings and let their voices be heard on responsible residential construction.

In addition, agents can up their marketing campaign by distributing the following free materials specifically designed to assist potential first-time homebuyers:

FARM: Tips for finding and buying your first home

FARM: What to do before you buy a house

FARM: Buy versus rent comparison analysis

FARM: Tired of renting? Become a homeowner! – postcard

Check out all of first tuesday’s free marketing materials here.

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Agents need to know: first-time homebuyer considerations