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First-time home buyers in the United States are getting older.
The average age of a first-time homebuyer has reached an all-time high of 38, three years older than it was in July 2023, according to the National Association of Realtors' 2024 Home Buyers and Sellers Report. This summer, NAR surveyed 5,390 buyers who purchased a primary residence between July 2023 and June 2024.
In the 1980s, the typical first-time buyer was in their late 20s.
“The first-time home buyer who can enter the market today is older, has higher incomes and is wealthier,” said Jessica Lautz, deputy chief economist at NAR, noting that rising home prices require larger down payments.
Additionally, first-time homebuyers' market share fell over the past year from 32% to 24%, the lowest level since NAR began collecting data in 1981.
Experts say factors, including a nationwide housing shortage, competition against affluent buyers and rising rental prices, are making it difficult for young people to buy their first home.
“Today's biggest housing issue”
The U.S. housing shortage is “the biggest housing issue today,” said Orvi DeVonge, chief economist at Zillow.
As of mid-2023, there is a housing shortage of four million homes, according to NAR. New home construction has been slow in recent years, and more buyers are competing for available homes, pushing up prices.
“We need affordable housing,” said Jonathan Scott, co-host of the HGTV series “Property Brothers.” “It will affect all of us if we don't start acting now.”
During a recent CNBC Your Money event, Scott said the ongoing housing shortage could significantly impact first-time buyers in the long term. “Give it another 20 years, and literally no young person will be able to buy a house,” Scott said.
Construction activity has improved somewhat. The number of U.S. single-family home starts, a measure of new housing starts, rose to 1,027,000 in September, according to U.S. Census data. This represents a 2.7% jump from August.
However, “We are still in a very constrained market,” said Selma Heap, chief economist at CoreLogic. “Because there are fewer homes on the market, you have more pressure on home prices.”
In August, a typical home cost $250,000, up from $240,000 the year before, according to Redfin.
“Winners in Today's Housing Market”
The housing market is dominated by repeat home buyers and sellers, or those who have owned and sold homes more than once. Previous homeownership gives them access to homeownership to leverage, in some cases enough to purchase homes outright.
About a quarter of homebuyers, or 26%, paid cash for their homes, an all-time high for cash buyers, NAR found.
U.S. homeowners with mortgages have net homeowner's equity of more than $17.6 trillion in the second quarter of 2024, according to CoreLogic. Home equity in the second quarter of this year rose by $1.3 trillion, an 8.0% increase from the previous year.
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Baby boomers and retirees are “the winners in today's housing market,” Lautz said. Frequent homebuyers are now 61, and sellers are typically 63, according to the NAR report.
“When we look at the average homebuyer, for older buyers, they have about $300,000 more equity versus younger millennial buyers,” Hipp said.
“We are seeing tenants staying tenants longer.”
Other factors, such as high rental costs and high debt-to-income ratios, make it difficult for potential buyers to save for a home, experts say.
Rental prices have risen faster than renters' wages during the COVID-19 pandemic. In 2022, rental growth peaked at 16% year-over-year, DeVonge said. That same year, wage growth peaked at 9.3%, according to data from Indeed.com.
The rising prices meant that the typical renter spent about 31% of their income on rent. About half of renter households were “cost burdened,” meaning they spent more than 30% of their income on housing.
“We are seeing renters staying rented longer because affordability has been severely reduced,” he said.
High rental prices not only affect your ability to save money to buy a home, but they can also affect your ability to pay off any existing debt, Lautz said.
For example, if a potential buyer has outstanding student loans, the cost of monthly rent may make it difficult for them to make larger payments toward their debt balance, she said.
This, in turn, affects your debt-to-income ratio, or the amount of money you pay each month toward debt. This is an important factor when qualifying for a mortgage. Essentially, lenders consider DTI to see if a borrower can afford a mortgage payment in addition to their existing loan obligations.
“All of these things add up, especially in an inflationary environment,” Lautz said.
