Best Cities for First-Time Homebuyers

First-time homebuyers looking to avoid the higher prices and tense competition of expensive housing markets can find better options and more growth potential in more affordable areas. A new study shows many top choices are in Texas.

First-time homebuyers already have to scale multiple entry barriers to homeownership, especially in the current economic environment. In an effort to identify the best areas for first-time homebuyers, SmartAsset recently conducted a study of 185 metropolitan areas, examining factors like affordability, growth forecast, population age, and competition. The study examined Zillow data from May and June 2023.

Texas claimed the top three spots and landed five positions within the top ten best housing markets, securing its place as the fourth fastest-growing state, according to the U.S. Census Bureau.

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Cities that stand out

Among the Texas cities ranked highest are Killeen, Wichita Falls, and McAllen. These three locations had the best combination of factors, making Texas a sweet spot for first-time buyers. Many of the other top ten cities are also in southern areas such as Florida, Tennessee, and Alabama. 

At first rank, Killeen, Texas, had a median home price of $252,833, alongside a median income of $63,458, meaning the home prices are less than four times the median income. Killeen also has a higher inventory of homes, averaging nearly 3,000 on the market each month. Assuming you’re a first-time buyer between the ages of 25 and 39 years old, you’ll likely find more appeal, since the area’s population leans toward a younger crowd. 

The lowest median price in the top ten is St. Joseph, Missouri, which landed the fourth spot just behind the Texas winners. At less than three times the median home price of $156,500, the median income of $58,093 makes this area the most affordable on the list. However, the secret is out and competition is high for St. Joseph homes, which average only five days on the market. The one-year growth forecast still makes this a contender with a projected 7.7% growth rate. 

Potential homeowners exhausted by the fast-paced markets of other metro areas could try Brownsville, Texas for more mellow competition. Homes here spend an average of 41 days on the market. Ranked number eight, Brownsville also offers affordability with median home prices of $236,500. Compared to the median income of $51,098, home prices are about 4.6 times the income, which is still low compared to states like California and Oregon which ranked the worst in affordability at nearly 10 times median income. 

Mortgage rates

Rising interest rates have lifted mortgage rates to the highest levels in decades. Currently, the average 30-year mortgage rate is at 7.23%, vs 7.09% last week and 5.13% a year ago. 

The Federal Reserve has lifted the fed funds rate, a key overnight bank lending rate, 11 time since 2022. At its most recent policy-setting meeting, the central bank raised the fed funds rate by another quarter-percentage point to a range of 5.25% to 5.50% and has since indicated that rates may still go higher this year.  

Higher interest rates mean mortgage rates are likely to stay elevated for some time. You can use our tool, in partnership with Bankrate, to find the best mortgage rates from multiple lenders.

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