Where Have All the First-Time Buyers Gone?

November 4, 2014 No Comments »
Where Have All the First-Time Buyers Gone?

The latest survey from the National Association of Realtors revealed some troubling news in the housing market.

The share of first-time home buyers reached its lowest point in nearly 30 years, per the 2014 National Association of Realtors® Profile of Home Buyers and Sellers.

The average, dating back to 1981, shows that roughly four of 10 home purchases are made by first-time buyers.

This year, that number is closer to a third (33%), down from 38% a year ago and not far from the all-time low of 30% in 1987.

Lots of Roadblocks

NAR chief economist Lawrence Yun pointed to the many roadblocks hindering the young from purchasing real estate these days.

One issue seems to be limited job prospects and/or stagnant income growth. Meanwhile, rents are rising and student loans are becoming more of a burden for college-educated individuals who would typically be the ones buying homes.

That means it’s difficult to raise enough money for a down payment, especially with all-cash buyers swooping in and buying up all the cheap properties nowadays.

There’s also talk of tight credit conditions and low housing inventory, which don’t appear to be improving.

Unfortunately, this hurts the housing ecosystem, which relies on young families to come in and buy lower-end properties from existing homeowners who then purchase move-up properties.

One could also argue that home prices have become too expensive again, even with mortgage rates as low as they are.

31 Still the Median Age of a First-Timer

Despite the decline in first-time buyers, the median age was still 31, unchanged from the previous two years.

And the median income of first-timers was $68,300, pretty darn close to the $67,400 reported in 2013. A 1,570 square-foot home was the norm purchase, with a price tag of $169,000.

Compare this to the typical repeat buyer who was 53 years old, earned $95,000, and purchased a median 2,030-square foot home costing $240,000.

As you might expect, the large majority (88%) of first-time buyers financed their home purchases, and the median down payment was a low six percent.

Aside from tapping their own savings, 26% of first-timers received a gift from a friend or relative, while six percent received a loan from a relative/friend.

Another 10% were forced to sell stocks or bonds or tap into their 401(k) to get the necessary funds to buy a home.

Repeat buyers were able to put down a median 13% down payment thanks to their existing home equity.

Fixed Mortgages Still King

The overwhelming loan choice for entry-level buyers continues to be a fixed-rate mortgage, with 93% preferring fixed over ARM.

That’s generally a good move because first-time buyers plan to stay in their homes for 10 years, while repeat buyers plan to hold onto their properties for 15 years.

Additionally, 35% of first-timers financed their home purchase with an FHA mortgage, though that number is down from 39% in 2013 and 56% in 2010 thanks to higher mortgage insurance premiums.

As for why they chose to buy a home, 53% of noobs cited the desire to own a home of their own. The American Dream.

Repeat buyers had a variety of reasons to buy again, with 12% experiencing a job-related move, 11% wanting a home in a better area, and 10% opting for a larger home.

The composition of buyers was pretty much unchanged from a year ago, with 65% married couples, 16% single women, nine percent single men, and eight percent unmarried couples.

Read more: Advantages of buying instead of renting.

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