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First time home buyers in the United States are getting older.
The median first-time home buyer hit a 38-year high, three years older than July 2023, according to to the National Association of Realtors’ 2024 Profile of Home Buyers and Sellers report. This summer, NAR surveyed 5,390 buyers who purchased a primary residence between July 2023 and June 2024.
In the 1980s, the typical first buyer was in their 20s.
“The first-time home buyer who can enter the market today is older, has higher income (and) is wealthier,” said Jessica Lautz, deputy chief economist at NAR, noting that Higher real estate prices require larger down payments.
Additionally, first-time buyers’ share of the market has declined over the past year, from 32% to 24%, the lowest since the NAR began collecting data in 1981.
Factors including nationally housing shortagecompetition against wealthier buyers and high rent prices make it harder for young adults to buy their first home, experts say.
“The biggest housing problem today”
The U.S. housing shortage is “the biggest housing problem today,” said Orphe Divounguy, senior economist at Zillow.
As of mid-2023, there was a housing shortage of 4 million homes, according to the NAR. Construction of new homes has been slow in recent years, and more buyers are competing for available homes, driving up prices.
“We need affordable housing,” said Jonathan Scott, co-host of the HGTV series “Property Brothers.” “This is going to affect us all if we don’t start acting now.”
During a recent CNBC Your Money eventScott said a continued housing shortage could have a significant influence on first-time buyers in the long term: “Give it another 20 years and literally no young person will be able to afford to buy a house, period.”
Construction activity has improved somewhat. Single-family housing starts in the United States, the number of new housing units starting construction increased to 1,027,000 in September, according to to US Census data. This represents a jump of 2.7% compared to August.
Still, “we’re still in a very, very constrained market,” said Selma Hepp, chief economist at CoreLogic. “Due to fewer homes on the market, there is greater pressure on housing prices.”
In August, the cost of a typical starter home was $250,000, up from $240,000 a year earlier. according to at Redfin.
“The winners of today’s real estate market”
The real estate market is dominated by home buyers and sellers who have already bought and sold their homes more than once. Previous homeownership gives them access to your home equity to exploit, in some cases, enough to buy houses outright.
About a quarter, or 26%, of buyers paid cash for their home, a record high for cash buyers, NAR found.
American homeowners with mortgages are net homeowners equity of more than $17.6 trillion in the second quarter of 2024, according to CoreLogic. Home equity increased by $1.3 trillion in the second quarter of this year, representing growth of 8.0% from the previous year.
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Baby boomers and retirees are “the winners in today’s housing market,” Lautz said. The typical regular home buyer is now 61, and sellers are typically 63, according to the NAR report.
“When we look at the average buyer, older buyers have about $300,000 in home equity compared to younger millennial buyers,” Hepp said.
“We are seeing tenants staying tenants longer”
Other factors like high rent costs And high debt ratios making it difficult for potential buyers to save for a home, experts say.
Rent prices have increased faster than tenants’ wages during the pandemic. In 2022, rent growth has peaked at 16% on an annual basis, Divounguy said. The same year, wage growth peaked at 9.3%according to Indeed data.
Rising prices mean the typical renter spent about 31% of their income on rent. About half tenant households were “burdened by costs” meaning they spent more than 30% of their income on housing.
“We are seeing tenants staying longer because affordability has been very limited,” he said.
High rent prices not only affect your ability to save money to buy a home, but also your ability to pay off any existing debt, Lautz said.
For example, if a potential buyer has outstanding student loans, the cost of their monthly rent could make it more difficult for them to make larger payments to cover their debt balance, she said.
This in turn influences your debt-to-income ratio, or the amount you pay toward debt each month. This is an important factor when qualifying for a mortgage. Essentially, lenders consider the DTI to see if a borrower can afford a mortgage payment on top of existing loan obligations.
“All of these things snowball, especially in an inflationary environment,” Lautz said.
