First-time home buyers are being priced out of the market like never before

If you bought your first home within the past year, consider yourself one of the lucky ones.

Soaring home prices and rising interest rates have pushed the share of first-time home buyers to an all-time low, according to a new report from the National Association of Realtors. And these first-time buyers were the oldest they’ve ever been, as a growing lack of affordability forced people to wait longer to reach life milestones like buying a home.

According to NAR’s 2022 Home Buyers and Sellers Report, first-time buyers made up just 26% of all home buyers in the year ending June 2022, down from 34% the year before. This is the lowest figure in the survey’s 41-year history. The share of first home buyers has been between 30% and 40% in the last ten years and reached 50% in 2009.

The age of first-time home buyers has also increased, with the typical age reaching 36, up from 33 last year. The age of the typical repeat buyer has also increased from 56 to 59. Both are all-time highs.

As home prices rose and mortgage rates rose, buyers’ incomes declined, the report said.

Median household income for first-time buyers fell to $71,000 in the year ended June, from $86,500 in the previous 12-month period. Meanwhile, the average income of repeat buyers was $96,000, down $112,500 from the previous year.

The study found that buyers typically bought their home for 100% of asking price, and 28% paid more than asking price.

“For first-time homebuyers, lack of affordability is a major deterrent to homeownership,” said Jessica Lautz, NAR’s vice president of demographic and behavioral insights. “They don’t have the capital that repeat buyers have for a down payment or cash. “They have to save more to pay rent, as well as student debt, child care and other expenses, and they face rising home prices this year as mortgage rates rise.”

The period covered by the study, from July 2021 to June 2022, saw the sharpest home price increases, reaching a peak median home price of $413,800 last June. Hampered by decades of not being built, inventory was at record lows, fueling competition to buy homes and driving up prices. By April of this year, mortgage rates began to exceed 5%. But it rose to 7% in late October after the Fed began a series of rate hikes to tame inflation. Mortgage rates fell slightly to 6.95% on Thursday.

These factors combined to create one of the toughest and cheapest housing markets in decades.

Economists and housing advocates have warned that an increasingly unaffordable housing market is driving many potential buyers, especially buyers of color, out of homeownership.

The study found that there were fewer black and Asian home buyers during the year under review, while the share of white and Hispanic buyers increased.

In the year ending in June, the vast majority of buyers, 88%, were white, up from 82% a year earlier. 8% of all home buyers were Hispanic, up from 7%. Meanwhile, 3% were black and 2% were Asian, both down from 6% a year ago.

According to the NAR, this could further widen the racial homeownership gap, where 72% of white Americans own a home, compared to only 43% of black Americans.

“We’ve been talking about the impacts, but this year we’re seeing it play out in the data,” Lautz said. “If we don’t build substantial homes at affordable prices, we’re going to continue to see first-time home buyers pull back.”

Previous NAR research has shown that black homebuyers have lower incomes, higher debt and are less likely to have family support for a down payment than other groups, Lautz said. The data also showed that black renters were also more stressed, with a larger share paying more than 30% of their income to their landlord.

“Raising rents and how that affects first-time homebuyers affects 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 average distance between a buyer’s current home and their new home was typically 15 miles between 2018 and 2021. During the year ending June 2022, the typical mileage was 50 miles.

Lautz said the research shows buyers face tough decisions about closing a deal on a home they can afford.

According to the NAR report, the typical home purchased was 1,800 square feet, had three bedrooms and two bathrooms and was built in 1986. It is a smaller and older house than in previous years.

“For many people, something had to be given in the equation: their location, the condition of the house or the size,” Lautz said.

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