Despite historically low interest rates and an improving economy, the share of first-time home buyers has fallen to its lowest point in nearly three decades, according to a just-updated annual survey by the National Association of Realtors.
The decline in first-time homebuyers prevents the housing market from reaching its full potential, the NAR says.
The long-term average for this survey, which dates back to 1981, finds that four out of 10 purchases are from first-time home buyers.
But in this year’s survey, the share of first-time buyers dropped 5 percentage points from a year ago to 33 percent, representing the lowest share since 1987 (30 percent).
Higher rents, rising student loan debts and the difficulty of saving for a down payment, especially for young adults, are the major reasons for the decline.
“Adding more bumps in the road, is that those finally in a position to buy have had to overcome low inventory levels in their price range, competition from investors, tight credit conditions and high mortgage insurance premiums,” said Lawrence Yun, NAR chief economist.
The household composition of buyers responding to the survey was mostly unchanged from a year ago. Sixty-five percent of buyers were married couples, 16 percent single women, 9 percent single men and 8 percent unmarried couples.
Typical First-Home Price: $169,000
The median age of first-time buyers was 31, unchanged from the last two years, and the median income was $68,300 ($67,400 in 2013). The typical first-time buyer purchased a 1,570 square-foot home costing $169,000, while the typical repeat buyer was 53 years old and earned $95,000. Repeat buyers purchased a median 2,030-square foot home costing $240,000.
When asked about the primary reason for purchasing, 53 percent of first-time buyers cited a desire to own a home of their own. For repeat buyers, 12 percent had a job-related move, 11 percent wanted a home in a better area, and another 10 percent said they wanted a larger home. Responses for other reasons were in the single digits.
According to the survey, 79 percent of recent buyers said their home is a good investment, and 40 percent believe it’s better than stocks.
In addition to tapping into their own savings (81 percent), first-time buyers used a variety of outside resources for their loan down payment. Twenty-six percent received a gift from a friend or relative – most likely their parents – and 6 percent received a loan from a relative or friend. Ten percent of buyers sold stocks or bonds and tapped into a 401(k) fund.
“Less stringent credit standards and mortgage insurance premiums commensurate with current buyer risk profiles are needed to boost first-time buyer participation, especially with interest rates likely rising in upcoming years,” Yun said.