By Chris Caraveo
First-time homebuyers in the U.S. have hundreds of cities deemed the best to choose from, and if they’re looking in Arizona, 10 cities are near the top, according to a report.
Discounting city size, Peoria is the best spot in Arizona, according to WalletHub. Phoenix, although No. 51 overall, is the 9th best large city for first timers.
Also included in the report are Chandler (12), Gilbert (16), Surprise (27), Scottsdale (29), Mesa (82), Glendale (102), Tempe (111), Yuma (126), and Tucson (137).
This report comes of the heels of a study by Genworth Mortgage Insurance Corporation, which found 39% of all U.S. single-family home purchases were made by first-time buyers.
Housing affordability was undoubtedly weighted the most among the 27 metrics considered in WalletHub’s report. It was calculated by dividing the median house price in a city by median annual household income.
The report also grouped cities by large, midsize and small for comparison among similarly populated cities.
In removing big city Tampa, Florida; and smaller cities Thornton and Greely, both in Colorado, Peoria in Arizona is the fourth best midsize city for homebuyers in the U.S. Yuma is the lone small city from Arizona, ranking 58th among 136 small cities.
So what makes Peoria a prime spot for first-time homebuyers? The Northwest Valley city is fifth in the real-estate market and is 13th in affordability.
WalletHub scored Peoria 6th in the nation in building-permit activity. That’s backed up by a recent story in the Peoria Independent, which found that between 2013 and 2018, Peoria approved a total of 7,735 single-family home permits, most of them in the central to northern part of the city. They increased from 845 in 2013 to 1,562 in 2016, an 85% increase.
Peoria is also 9th in greatest share of listings with price cuts, as well as 9th in homeownership rate for millennials. Gilbert is apparently No. 1 in the U.S. for millennial homeownership, with Surprise 7th.
People looking to buy in Yuma, Surprise Tucson and Glendale are likely to see their cost per square foot on the lower end. Yuma homes see an average of $120.82 per square foot while Glendale on the other end is $137.98. The other seven cities have cost per square foot greater than $149, with Scottsdale topping out at $248.61.
Oddly, what dings most Arizona cities is the quality of life. Aside from Scottsdale, which is ranked No. 54 for quality, the other cities in the state are below 120, with Peoria ranked 223rd.
That’s mostly due to the cities being group together in recession recovery and quality of school system. All Arizona cities rank 284th in schools and are below 180th in recession recovery. Total home-energy costs are also high in those cities, with all but Tucson and Phoenix with costs above $245 a month.
However, metro Phoenix has been growing at about 2% per year, resulting in about 95,000 to 100,000 persons.
Mark Stapp, director of the Center for Real Estate Theory and Practice, told the Peoria Independent that percentage equates to demand of about 27,000 to 30,000 new housing units, driven by cost of living and employment growth. Maricopa County continues to be one of the fastest growing counties in the nation, according to U.S. Census Bureau estimates, ahead of the 2020 Census.
“I think Peoria has evolved along with metro Phoenix but lagged slightly in recovery,” Mr. Stapp said. “Now Peoria has been one of the fastest-growing areas of the metro area. The Northwest Valley had about 13% market share of new home permits last year. That market share is likely to stay about the same this year.”
Marc Moffitt, adjunct professor of real estate at the University of North Texas, said people should look at their credit when deciding whether to buy their first home.
“Once that’s in order, it’s time to call a lender,” he said. “When you talk to your lender for the first time, tell them that you’d like to keep your monthly payment between one quarter and one third of your monthly take home income. If you keep it in that range, you’ll be in good shape.”
Terry Fields, associate professor of property management and real estate at the University of Alaska Anchorage, said people will know they’re ready for their first home if they are financially resilient and committed to longevity in one location.
“Is your income consistent and secure, or is it volatile and subject to change with little or no notice? Do you consistently pay off your debts?” he said. “Personally, I would not consider purchasing a home if I needed to maintain a balance on my credit card on a monthly basis.”
However, things like vehicle or student loan debt is okay, but recurring or consumer debts should be under control before taking on the financial aspect of owning a home. People should also maintain a healthy savings balance in the event of an emergency like a roof leak or pipes breaking.
Mr. Fields recommends that unless a person can commit to stay in a home for a period of 5 to 7 years, they should probably rent instead of buy, especially if they aren’t intending to rent the home out after moving.
The biggest challenge for most first time homebuyers is going to be the down payment. Some experts recommend putting down 20% to get a loan and avoid having to pay for mortgage insurance (PMI). But because some people may be low on income, 5-10%, or even 3.5-5%, down may fly with most lenders.
“A down payment in the 5-10% range is acceptable, especially if the person intends to occupy the home for seven years or more, enabling appreciation to grow and debt to be paid down before selling the home,” Mr. Fields said. “Otherwise, homeowners that put little money down and don’t allow equity to build will find themselves underwater if they need to sell — a scenario that played itself out regularly in 2009 when falling home prices made the gap even harder to widen.”
All around, experts recommend people look at the following when planning their first home purchase:
Transportation: Commute time, personal vehicle v. public transit, traffic, walkability, future road projects.
Security: Check crime rates and types in neighborhood; drive the area at different times of the day; note behavior or community watch program signs.
Schools: Talk with other parents and teachers; check reviews of school ratings; look for school boundaries; school district taxes.
Entertainment: Public parks, sidewalks, baseball fields, golf courses; walking distance to food, bars, or cultural places; grocery stores, gas stations, pharmacies, and medical practices.
Legal Matters: Zoning designations, home owners associations, deed restrictions.
Appreciation: The above characteristics are most demanded by individuals in the market and may lead to higher than average appreciation potential and selling capability in the future.