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Buying your first home in the US? Save, and save some more

Mark Hildreth and Caitlin Saloka spent years saving and paying down school debt in order to buy their first home. With help from his parents, the couple finally bought a one-bedroom apartment in the Fort George neighbourhood of Washington Heights last year.

New York

ONE couple in Queens pulled thousands out of their retirement savings. The parents of a Manhattan couple offered up their home equity line of credit. And a mother on Long Island chose to work seven days a week.

As housing prices continue to outpace wage growth, it has become harder for first-time buyers to save up for the biggest purchase of their lives - especially those who want to buy in New York City, where the downpayment alone can amount to hundreds of thousands of dollars.

"People will go to extreme measures to buy here," said Jason Haber, a broker at Warburg Realty, a luxury agency in Manhattan.

There are the cutbacks. Eating out? Nope. Shopping? Definitely not.

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Student loan debt needs to be paid down first or refinanced.

Sometimes, a couple will set aside one person's entire income for the downpayment, Mr Haber said. Other buyers can manage it only with multiple gifts from family members. "It's almost like a GoFundMe," he said.

According to an analysis by Social Explorer, a research company, first-time buyers in New York City - much like those in other large metropolitan areas - differ markedly from buyers in the rest of the country.

Market of renters

Queens has long been a more affordable option for first-time buyers, although the borough is starting to catch up with Manhattan and Brooklyn. In the past year, prices there grew 3 per cent, said Nancy Wu, a data analyst at StreetEasy.

About 70 per cent of New York City's residents are renters. And a recent StreetEasy survey of 2,550 New Yorkers across all five boroughs found that 66 per cent of renters plan to continue renting. One of the top reasons - they can't afford to buy.

First-time buyers nationwide face similar hurdles.

"If you look at the housing market seven or eight years ago, qualifying for a mortgage was something more top of mind, because credit was so tight," said Cheryl Young, a senior economist at Trulia. But recently, saving for a downpayment has become a more primary concern.

According to a recent national survey by Trulia, 56 per cent of people between the ages of 18 and 34 said saving enough for a downpayment was the biggest barrier to homeownership, followed by rising home prices. Other top concerns included poor credit history and student loan debt, both of which can make it difficult to get a mortgage.

These problems have helped push the median age of homebuyers to 46, the oldest age ever recorded by the National Association of Realtors. When the organisation started collecting this data in 1981, the median age was 31. But millennials ranging in age from 25 to 34 make up the largest share of homebuyers, and the median age for first-time buyers has remained around 30 to 32 for over 20 years.

"The best advice I give younger New York City residents is to try and make money like a New York City professional, but spend like you're still a college student," said Robert Stromberg, who works with six-figure earners in their 30s and 40s at his financial planning firm, Mountain River Financial, near Philadelphia. "If you don't want to adjust your spending, well, then you're left with just earning more."

For first-time buyers Mark Hildreth, a construction manager, and his wife, Caitlin Saloka, a global account supervisor for an advertising firm, both 28, their debt made it difficult to save for a home.

"We blew most of what we had on a wedding in 2014," Mr Hildreth said. They spent the next year paying it off while also trying to pay down student debt.

His parents used their home equity line of credit to help Ms Saloka refinance her loans, reducing her interest rate to 3.5 per cent from 12. Mr Hildreth, who recently began pursuing a master's degree at Columbia, had several school bills of his own.

He found a better-paying job in 2017 and skipped retirement savings to save for a downpayment. Ms Saloka also got a raise that year, and they continued to live in the US$1,350-a-month rent-stabilised apartment in the Fort George neighbourhood of Washington Heights in Manhattan that Ms Saloka found about seven years ago.

"Anytime we would get money that we weren't expecting, whether it's a US$100 birthday gift or a relative passing away or a bonus at work, we would invest that money," Mr Hildreth said. By the time they were ready to buy, they had paid down about US$70,000 of their US$100,000 in loans and graduate school expenses.

Their broker showed them a renovated one-bedroom apartment, with an open floor plan, that hadn't yet hit the market, right across the street from where they had been renting.

"The place kind of fell in our lap," Ms Saloka said. They negotiated the US$409,000 asking price down to US$400,000.

Mr Hildreth's parents agreed to cover half the 20 per cent downpayment. For the other half, "we were grabbing every bit of money that we had lying around", he said, including a stack of savings bonds from his grandparents worth just under US$3,000.

They closed in February of last year.

First-time buyers have also had success building their savings through investments, thanks to the bull market of the last 10 years.

George Parson, 31, a process engineer at a snack-food company in New York City, became the first in his immediate family to own a home after giving $50,000 of his savings to a financial planner who nearly doubled it in 4 1/2 years.

He considered using the money to travel, one of his passions. But he decided to buy a one-bedroom apartment in Washington Heights instead.

Parson grew up in the Bronx, where his mother rented "her whole life," he said. "If I decide to have children, I want to give them something better than what I had. I figured it was one of the last pieces of Manhattan where I could afford to live comfortably."

As at January this year, the median home price in Manhattan was just under US$1 million, about four times the national median. And the amount needed for a downpayment is especially high for New York City buyers, in part because much of the housing stock is co-ops that require at least 20 per cent down, eliminating the possibility of using low downpayment loans backed by the Federal Housing Administration or the Department of Veterans Affairs.

In the third quarter of 2018, the median downpayment in New York City was US$177,000, according to ATTOM Data Solutions, a real estate data company. By contrast, the typical first-time homebuyer in the United States put down US$15,878 in 2018, said Guy Cecala, chief executive of Inside Mortgage Finance.

One bright spot

But one bright spot for New York buyers, especially those in Manhattan - inventory keeps climbing and staying on the market for a longer period of time, making it easier to negotiate.

At a recent StreetEasy event that drew hundreds of first-time homebuyers from around New York City, Ms Wu told the audience that Manhattan home prices fell 4 per cent between January 2018 and January 2019. And in Brooklyn, price growth has remained fairly stagnant for the past year.

"Right now, there are so many more discounts than there have been in the past," she said.

Alex Novack, 37, a real estate broker at Sotheby's, and his husband, Fernando Gonzalez, 36, who works at a private bank, used that to their advantage when they began hunting for their "forever home" last summer.

Neither of them were first-time buyers, having each bought apartments in the Chelsea neighbourhood of Manhattan before they met. When they married in 2014, they were renting a two-bedroom, two-bathroom apartment in Williamsburg, Brooklyn.

"You get to a certain point where, no matter how much you love your space, you want to make little changes," Mr Novack said. But if you're making improvements to a rental, he added, "you feel like you're throwing money out the door". Although the men both work in lucrative industries, they weren't immune to the lifestyle changes often necessitated by a big purchase.

Several years ago they downsized, forgoing water views and nearly 1,500 square feet in Brooklyn for a one-bedroom in the West Village, which saved them about US$2,000 a month on rent. They also cut back on other spending.

"We didn't live a monk-like lifestyle," Mr Novack said, but they limited dinners out to once or twice a week and dialled back on their shopping.

"You just try to be smarter," said Mr Gonzalez, who has a weakness for Barneys and Bergdorf Goodman. "You don't have to buy everything full price at the top of the trend." The rest of their savings for the down payment came from bonus and commission money. Within four years, they had saved more than half a million dollars.

Last year, they came across what Mr Novack described as a "totally charming" two-bedroom, two-bathroom co-op in NoMad, the area immediately north of Madison Square Park, with a small balcony and open exposures facing east and south.

The apartment was listed for US$1.599 million. They negotiated the price down to US$1.46 million. "This is really our most meaningful real purchase together, for sure," Mr Novack said. NYTIMES

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