If you bought your first home in the past year, consider yourself one of the lucky few.
Skyrocketing home prices and rising interest rates have pushed the proportion of first-time home buyers to an all-time low, according to a new report from the National Association of Realtors. And those first-time buyers were the oldest they’ve ever been, as increasing affordability has forced people to wait longer to achieve life milestones like buying a home.
First-time buyers accounted for just 26% of all homebuyers in the year through June 2022, up from 34% a year earlier, according to the 2022 NAR Report on Homebuyers and Sellers. That was the lowest reading in the survey’s 41-year history. The proportion of buyers who buy a first home has ranged from 30% to 40% over the past ten years, reaching up to 50% in 2009.
The age of first-time homebuyers was also increasing, with the typical age reaching 36, up from 33 last year. The age of typical repeat buyers also increased from 56 to 59 years. Both are all-time highs.
As home prices soared and mortgage rates rose, buyers’ incomes fell, the report said.
The median household income for first-time buyers slipped to $71,000 in the year ended June, compared to $86,500 in the previous 12-month period. Meanwhile, repeat buyers had a median income of $96,000, up from $112,500 a year earlier.
Buyers typically bought their homes for 100% of asking price, the study showed, with 28% paying more than asking price.
“For first-time homebuyers, lack of affordability plays a key role in deterring them from home ownership,” said Jessica Lautz, vice president of demographics and behavioral insights at NAR. “You don’t have the equity that repeat buyers have for a down payment or cash purchase. They need to save while paying more for rent, student debt, child care and other expenses, and this year they have faced rising house prices while mortgage rates are also rising.”
The July 2021 to June 2022 period covered by the study saw some of the steepest home price increases, reaching a median home price of $413,800 this past June. Inventory, hampered by decades of underdevelopment, was at an all-time low, keeping homebuyer competition frenetic and prices soaring. In April of this year, mortgage rates started to rise above the 5% mark. But after the Fed launched a series of rate hikes to tame inflation, they rose to as much as 7% by the end of October. On Thursday, mortgage rates fell slightly to 6.95%.
Together, these factors have resulted in one of the most challenging and least affordable housing markets in decades.
Economists and housing advocates warn that the increasingly unaffordable housing market is discouraging many potential buyers, particularly paint buyers, from owning their homes.
The research showed that there were fewer Black and Asian home buyers in the year studied, while the proportion of White and Hispanic buyers increased.
During the year ended June, the overwhelming majority of shoppers, 88%, were white, up from 82% a year earlier. Of all homebuyers, 8% were Hispanic, versus 7%. Meanwhile, 3% were Black and 2% Asian, both down from 6% a year ago.
This is likely to widen the racial homeownership divide, according to NAR, where 72% of white Americans own a home, while only 43% of black Americans own a home.
“We’ve talked about the impact, but this year we’re seeing it realized in the data,” Lautz said. “Unless we have significant housing construction at affordable prices, we will continue to see first-time home buyers held back.”
Lautz said previous NAR research had shown that prospective black homebuyers had lower income, higher debt and less likelihood of family support for a down payment than other groups. The data also showed that black renters are also coming under more pressure, with a larger proportion paying more than 30% of their income to their landlord.
“With rents rising and how that’s hitting first-time home buyers, it’s affecting black buyers more than any other group,” Lautz said.
Because of the affordability crisis, homebuyers seemed less able or interested in buying in the area they currently live. The median distance between a buyer’s current home and their newly purchased home was typically 15 miles between 2018 and 2021. Typical distance during the year ended June 2022 was 50 miles.
Lautz said the research showed buyers faced difficult decisions in order to close the deal on a home they could afford.
The typical home that was purchased was 1,800 square feet, had three bedrooms, two bathrooms, and was built in 1986, the NAR report found. This is a smaller and older house than in previous years.
“For a lot of people, something had to go into the equation: their location, the condition of the home, or their size,” Lautz said.