First-time homebuyers are being squeezed out of the market like never before

If you bought your first home in the last year, consider yourself one of the lucky few.

Skyrocketing home prices and rising interest rates have pushed the share of first-time 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 had ever been, as the growing lack of accessibility forced people to wait longer to reach life milestones like buying a home.

First-time buyers made up just 26% of all home buyers in the year ending June 2022, down from 34% the year before, according to NAR’s 2022 Home Buyers and Sellers Report. This was the lowest in the survey’s 41-year history. The share of buyers buying a first home has remained between 30% and 40% over the past decade and reached 50% in 2009.

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

With rising house prices and rising mortgage rates, buyers’ income declined, the report found.

Median household income for new buyers fell to $ 71,000 during the year ended June, down from $ 86,500 in the previous 12-month period. Meanwhile, repeat buyers had an average income of $ 96,000, down from $ 112,500 a year earlier.

Buyers typically bought their homes for 100% of the asking price, the research showed, with 28% paying more than the asking price.

“For first-time home buyers, lack of affordability plays a key role in keeping them from home ownership,” said Jessica Lautz, vice president of demographics and behavior at NAR. “They don’t have the equity that regular buyers have for a down payment or to buy for cash. They have to save by paying more for rent, as well as student debt, childcare and other expenses, and this year they have faced a rise in house prices while mortgage rates are also on the rise. ”

The time period covered by the research, from July 2021 to June 2022, included some of the highest increases in house prices, reaching an average house price peak of $ 413,800 last June. Inventory, hampered by decades of under construction, was at record highs, which kept competition for home purchases frenzied and pushed prices higher. In April of this year, mortgage rates started to cross the 5% mark. But, after the Fed embarked on a series of interest rate hikes to tame inflation, it climbed to 7% by the end of October. Mortgage rates dropped slightly to 6.95% on Thursday.

Together, these factors have created one of the most challenging and least affordable real estate markets in decades.

Economists and housing advocates have warned that the increasingly inaccessible housing market is blocking many potential buyers, especially black buyers, out of home ownership.

Research showed that there were fewer black and Asian homebuyers during the year studied, while the share of white and Hispanic homebuyers increased.

During the year ended June, the vast majority of shoppers, 88%, were white, up from 82% the previous year. Of all homebuyers, 8% were Hispanic, compared with 7%. Meanwhile, 3% were black and 2% Asian, both down from 6% a year ago.

This could exacerbate the racial divide in home ownership, in which 72 percent of white Americans own a home while only 43 percent of black Americans own a home, according to NAR.

“We talked about the impacts, but this year we are seeing it realized in the data,” Lautz said. “Unless we have substantial affordable home construction, we will continue to see first-time buyers held back.”

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

“With rents rising and the way it’s affecting first-time homebuyers, it’s impacting black buyers more than any other group,” Lautz said.

Due to the economic crisis, homebuyers seemed less able or interested in buying in the area they currently live in. The median distance between a buyer’s current home and the newly purchased home was typically 15 miles between 2018 and 2021. The typical distance during the year ending June 2022 was 50 miles.

Lautz said research showed buyers faced tough decisions to close the deal on a home they could afford.

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

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