40% Of First-Time Home Buyers Compromise Their Nonnegotiables

• 60% of first-time home buyers increased their budgets by at least $20,000 after entering the housing market
• 74% of first-time home buyers listed the number of bedrooms as their top nonnegotiable home expectation
• Of those who have made an offer on a house, 85% have made two or more offers

First-time home buyers deal with some unique challenges. From figuring out how much to save for a down payment to navigating a completely foreign mortgage process, there’s a lot to learn before they can get the keys to their first home.

But first-time home buyers are facing additional obstacles in the current real estate market, largely due to higher home prices, rising interest rates, and an extremely competitive housing market. According to the U.S. Census Bureau and the Federal Reserve Bank of St. Louis, the median sales price of a single-family home was up to $428,700 in the first quarter of 2022. That’s an almost 16% increase in price year-over-year.

Home buyers are very much aware of the housing price increase and market conditions. In a new survey by Rocket Homes^SM of over 1,000 first-time home buyers, the median starting budget was $400,001 – $600,000, but the majority of buyers (60%) ended up increasing their budget by $20,001 – $40,000 after getting serious about their home search.

And price isn’t the only thing these prospective homeowners are willing to compromise on in this market – many are also sacrificing what they originally categorized as their nonnegotiables.

But when it comes to nonnegotiable home expectations, what exactly are first-time home buyers willing to give up for the opportunity to own a home? Are they more willing to compromise on budget or home features?

First-Time Home Buyer Budgets Are Continuing to Rise

Following the housing boom experienced throughout the COVID-19 pandemic, many first-time home buyers are entering the market in 2022 with high budgets and even higher expectations for their dream home. Of current first-time home buyers, only 20% started their search with a budget of $200,000 or less, with 22% starting with a budget between $200,001 – $400,000. The majority of buyers (58%) had a budget over $400,001 when they entered the market.

But for some, evaluating and reevaluating their budget can be an ongoing process. As competition for available housing persists, 60% of these first-time buyers have felt the need to increase their home budgets, with 11% opting to raise it by $80,000 or more.

And of those who have chosen to increase their budget, 59% only started seriously browsing homes at the beginning of 2022. That means after less than 6 months in the market, home buyers are feeling the pressure to compete for the limited supply of homes for sale, with construction of new homes still at a slow pace due to supply chain and labor shortages across the country.

But budget isn’t the only area home buyers are compromising.

First-Time Home Buyers’ Biggest Nonnegotiable Became Negotiable

Most first-time home buyers have certain expectations before even entering the housing market. But in a competitive seller’s market, finding and securing a property that meets their lofty expectations can be challenging. New data shows that some home buyers are willing to trim their list of nonnegotiables if it means buying a house sooner.

Of buyers, 74% listed the number of bedrooms as their biggest nonnegotiable when buying their first home. This makes sense, because with the cost of construction high, the number of bedrooms would be one of the most difficult and expensive things to change about their house down the road. It’s also one of the top features that increases their home’s value. Other popular nonnegotiables included central air, an updated kitchen, an updated bathroom, and good natural light.

But in the current market, 40% of home buyers said they are willing to be flexible on what was previously considered nonnegotiable. What exactly are these buyers willing to give up? Surprisingly, it’s their top priority that has suddenly become negotiable – the number of bedrooms.

With housing costs on the rise, this may be because the number of bedrooms can greatly increase the cost of a home. Out of those who expected to buy a house with at least three bedrooms before starting their search, 15% ended up reducing their expectation to two bedrooms after spending time in the market.

And bedrooms aren’t the only thing home buyers are willing to sacrifice right now. When asked what nonnegotiables have become negotiable during their home search, buyers also listed the updated kitchen, updated bathroom, and natural light as the primary features they would be willing to compromise. This means four of the top five nonnegotiable expectations home buyers started with became negotiable along the way.

The one area buyers are less willing to compromise? The second most popular nonnegotiable: central air. Of the 304 people who listed central air as a top priority and said their nonnegotiables had become negotiable, only 22% said this expectation has become negotiable.

48% Of First-Time Home Buyers Have Made At Least One Offer On A House

For many, the experience of buying a first home can feel long and drawn-out. This is especially true in a competitive market, where there is a real possibility that a buyer will get to the point of making an offer only to have the offer denied.

Of the 48% of prospective home buyers who have made at least one offer on a house, 85% have made two or more offers and 37% have offered over the asking price. But offering over ask isn’t always enough to turn the tide in a buyer’s favor these days. This may be why 46% of these buyers have made the decision to increase their budget by $40,000 – $100,000 since the time they began seriously looking at homes for sale.

Even still, 52% of buyers said they haven’t had the chance to make an offer on a house yet. Of those who haven’t made an offer, 33% said they can’t find a house that meets their nonnegotiable expectations, while another 30% can’t find a house within their budget. 33% were able to find houses of interest, but quickly discovered the house already had multiple offers before they could get an offer in themselves.

So, what does all this mean for prospective home buyers? Whether their budget is too low, or their expectations are too high, buyers navigating the current market are adapting as necessary to secure a home. For many, this means budgets on the rise and nonnegotiables on the chopping block.

Methodology

To better understand home buyer budgets and nonnegotiable home expectations, Rocket Homes surveyed 1,005 first-time home buyers between the ages of 26 and 41 who are actively searching for their first home. Participants who currently own homes or have no plans to purchase a home in the immediate future were screened out. This survey was conducted in April 2022.