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First-time homebuyers in the United States are aging.
According to the National Association of Realtors’ 2024 Home Buyer and Seller Profile report, the median age of first-time homebuyers is at a record high of 38, three years older than it was in July 2023. This summer, NAR surveyed 5,390 buyers who purchased their primary home between July 2023 and June 2024.
In the 1980s, the typical age for first-time buyers was in their late 20s.
“First-time homebuyers entering the market today are older, have higher incomes, and are more affluent,” said Jessica Lautz, deputy chief economist at NAR, adding that rising home prices will require larger down payments. pointed out.
Additionally, the proportion of first-time homebuyers in the market has declined from 32% to 24% over the past year, the lowest since NAR began collecting data in 1981.
Experts say factors such as a national housing shortage, competition from wealthy buyers and high rents are making it more difficult for young people to buy their first home.
“Today’s biggest housing problem”
Orpheus Divongi, senior economist at Zillow, said the U.S. housing shortage is “the biggest housing problem today.”
According to NAR, there will be a shortage of 4 million housing units as of mid-2023. In recent years, construction of new homes has slowed, buyers are competing for vacant properties, and prices are rising.
“We need affordable housing,” said Jonathan Scott, co-host of the HGTV series “Property Brothers.” “If we don’t act now, it will affect us all.”
At a recent CNBC Your Money event, Scott said a persistent housing shortage could have a dramatic impact on first-time buyers in the long term. “In another 20 years, literally no young person will be able to buy a home,” Scott said.
Building activity has improved somewhat. U.S. single-family housing starts, a measure of new housing construction, rose to 1.027 million in September, according to U.S. Census data. It has increased by 2.7% since August.
But “we’re still in a very constrained market,” said Thelma Hepp, chief economist at CoreLogic. “With fewer homes on the market, pressure on home prices is increasing.”
The typical starter home cost $250,000 in August, up from $240,000 a year earlier, according to Redfin.
“A winner in today’s housing market”
The housing market is dominated by people who are repeat buyers and sellers of homes, or who have owned and sold homes multiple times. Previous home ownership gives you access to home equity, sometimes even enough to buy a home outright.
According to NAR’s research, nearly a quarter (26%) of homebuyers paid cash for their home, the highest number ever.
According to CoreLogic, the net homeowner equity of U.S. homeowners with mortgages will exceed $17.6 trillion in the second quarter of 2024. Housing equity increased $1.3 trillion in the second quarter of this year, an 8.0% increase from the same period last year.
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Baby boomers and retirees are “the winners in today’s housing market,” Lautz said. The typical repeat homebuyer is now 61 years old, and sellers are typically 63 years old, according to the NAR report.
“If you look at the average homebuyer, an older buyer has about $300,000 in home equity compared to a younger millennial buyer,” Hepp said.
“Renters tend to stay as renters for a long time.”
Experts say other factors, such as high rents and rising debt-to-income ratios, are making it difficult for prospective buyers to save for a home.
Rent prices have risen faster than tenant wages during the coronavirus pandemic. Rent growth peaked at 16% on an annual basis in 2022, Devongai said. Wage growth reached 9.3% in the same year, according to data from Indeed.
Rising prices mean the typical renter spends about 31% of their income on rent. Approximately half of rental households were “cost-burdened,” meaning they spent more than 30% of their income on housing.
“We’re seeing renters remain renters for the long term because affordability is so squeezed,” he said.
Rauts said rising rents not only affect a person’s ability to save for a home purchase, but can also affect their ability to repay existing debt.
For example, if a potential buyer has outstanding student loans, the monthly rent burden could make it difficult to make large payments toward the outstanding debt, she said.
It affects your debt-to-income ratio, or how much you pay toward your debt each month. This is an important factor when taking out a home loan. Basically, lenders consider DTI to see if a borrower can keep up their mortgage payments on top of their existing loan obligations.
“All of this snowballs, especially in an inflationary environment,” Lautz said.
