After bidding wars during the pandemic, demand for home purchases has fallen amid higher mortgage interest rates. That dynamic has made some markets are more attractive for first-time home buyers for 2023, according to a Zillow report released this week.

The real estate site found the “best opportunity” for first-time buyers in metros areas with more affordable rent, less competition and a higher inventory of homes for sale.  

“The affordability hurdle is very tough,” said Matt Hackett, manager of operations at Equity Now, a mortgage lender in Mamaroneck, New York, that operates in five states. 

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One of the biggest challenges has been a sharp increase in interest rates within a short amount of time, explained Erica Davis, producing branch manager at Guild Mortgage in Myrtle Beach, South Carolina.

Mortgage interest rates have more than doubled from early January after a series of hikes from the Federal Reserve to curb inflation in 2022. These rates have recently softened, reaching 6.41% last week.  

Meanwhile, median home sales prices are higher year-over-year, reaching $454,900 during the third quarter of 2022, according to the Federal Reserve Bank of St. Louis.

Still, some markets may be more affordable for buyers on a budget, Zillow’s report shows.

These are the best metros for first-time home buyers in 2023 based on mortgage and rent affordability, housing supply and the share of listings with a price cut, according to Zillow.

1. Wichita, Kansas
2. Toledo, Ohio
3. Syracuse, New York
4. Akron, Ohio
5. Cleveland
6. Tulsa, Oklahoma
7. Detroit
8. Pittsburgh
9. St. Louis
10. Little Rock, Arkansas

While affordability may be a concern, experts say first-time home buyers may have more options than they expect.

“First-time homebuyers almost always have that knowledge gap,” said Hackett. “They’re not really sure how much they can afford, and they’re not really sure how much they need for a down payment.”

For example, many first-time home buyers don’t know about mortgages for veterans, which don’t require a down payment, or Federal Housing Administration loans with 3.5% down, he said. 

You may also qualify for so-called conventional mortgages, backed by Fannie Mae or Freddie Mac, with down payments as low as 3%.

However, loans with a smaller down payment come with mortgage insurance and higher interest rates, which may be reduced later, experts say. You’ll also have a bigger monthly payment with a larger mortgage.

Davis said lower down payment mortgages may also preserve savings for future home expenses. “There’s less stress if they’re able to close and still have some money in their pocket,” she said.  

Depending on your income and location, you may also qualify for first-time home buyer grants or programs run by state and local governments to help cover your down payment and closing costs. “It’s definitely a good option,” Hackett said, urging buyers to speak with a local mortgage expert familiar with programs in their area.