Call them the face of the new frugal. Erica Rhyne-Christensen and fiancé Bryant Giorgi, both 27, don’t vacation much. They hardly eat out. Until recently, they rented rooms in a group house for $400 a month each instead of getting solo apartments, and they didn’t have TV.
All that penny pressing let them nab something bigger than a vacation in Rome: They closed on their own house in Sacramento’s Land Park in late March, putting down $100,000, almost 25 percent of the purchase price.
They may be new to real estate, but Sacramento’s first-time homebuyers are street smart and financially conservative when it comes to deciding on houses. And they just may be the best insurance against another crop of overextended mortgages.
For real estate agents, they’re something like dream clients. When she first started selling houses eight years ago, Kellie Swayne of Dunnigan Realtors says new buyers would want to scope out houses on day one. “And I’d say, ‘Whoa, the first step is to talk to a lender.’” Now, before first-timers even call her office, almost all have talked to a loan officer, gotten prequalified and identified a list of houses, she says.
“First-time buyers are so much more educated and knowledgeable right now,” adds Valerie Baldo of Placer Title Co.
For all the housing market devastation wrought by the roaring 2000s, those years did achieve one thing: It scared the new generation straight. Dunnigan’s Erin Stumpf says most of her newbies know someone who had to short sell, overextended their budget or got trapped in a negative amortization loan.
First-timer Laura Deutsch, 24, says she and fiancé David Andrews, 25, saw family and friends get stuck in underwater houses, and a friend of hers is working through a short sale after not being able to afford her payments. Watching others suffer through the housing collapse made them more cautious as they approached the process, she says.
And new buyers know that the housing downturn has almost eliminated no-money-down deals. Statewide, first-time buyers who made no down payment went from about 40 percent in 2006 to 7 percent last year. (Loans guaranteed by the U.S. Department of Veterans Affairs still provide a few qualified borrowers with zero-down options, says Andrew Vierra of WealthWise Mortgage Planning in Folsom.) Swayne says she’s seeing most new buyers put down between 5 and 20 percent.
Of course, saving money is no easy feat when you’re planning a wedding. Rhyne-Christenson and Giorgi are confining their ceremony to 100 guests to keep it within their families’ budget. That allowed the couple to avoid dipping into their own savings and helped make their big down payment possible.
Most area first-timers are opting for houses in the 3-bedroom/2-bath range that average between 1,300 and 1,600 square feet and cost $100,000 to $300,000, according to several area realtors. And many of them are following a new maxim of buying a bank-owned house in a nice part of town. Forty-five percent of all short sales in California are going to first-time buyers, versus 30 percent of traditional equity sales, in which the seller owes less than the house is worth.
Deutsch and Andrews closed in April on a bank-owned 3-bed/2-bath, move-in-ready home in West Sacramento’s Bridgeway Lakes neighborhood, paying $270,000. “We never thought we’d be able to move into this neighborhood because the houses are much bigger. … So when this one came on the market we were happily surprised,” Deutsch says.
In fact, some area Realtors say tiny starter homes are mostly out for first-time buyers like Deutsch and Andrews.
“They’re thinking, ‘We’re going to have kids, the interest rates are low, I’m going to take advantage and get the most for the money that I’m comfortable with,’” says Gloria Doze of Windermere Granite Bay Realtors and the Placer County Association of Realtors. Rhyne-Christensen says she learned from watching people she knows buy starter homes and then get stuck in underwater mortgages that kept them from selling and moving up. So she and Giorgi want a house they’d be happy living in for a long time, making the ups and downs of the market less relevant. “This is our forever home,” she says.
But as they decide how big to go, they’re sticking with modest monthly payments. Vierra and other area professionals say most of the first-time buyers they’re seeing are not ending up with high debt-to-income ratios. Deutsch and Andrews qualified for a mortgage 9 percent above what they paid and Christensen and Giorgi for one that was 11 percent above their final sales price. First-time buyers Jessica Conover, 34, and husband Ron Sekulich, 42, who bought a 3-bed/2-bath house in Sacramento’s Tahoe Park, qualified for 15 percent more than their final price.
Could the financial savvy of this crop of new purchasers rub off on future first-time buyers? “Absolutely — if buyers’ behavior changes and it lasts over a substantial period,” says Michael Seiler, who studies the psychology of real estate as founder of the Institute for Behavioral and Experimental Real Estate at the College of William & Mary.
That’s important because, despite its hot market, the Sacramento region still has room for new buyers. Sacramento County and Placer County rank sixth and ninth in home affordability for first-time buyers out of the 27 selected counties whose home affordability is tracked by the California Association of Realtors. In turn, many first-timers also are attractive to mortgage financers since they don’t have foreclosures or short sales on their record, says Marty Swingle of Capital West Realty.
If that combination results in a new generation of smart homeowners, so much the better. They could make for a stable regional housing market long into the future.