First-Time Homebuyers Hits Lowest Point in 30 Years

The U.S. economy is improving, employment is growing and home prices are recovering, but first-time homebuyers are not returning to their normal, historical levels of homeownership.

The percentage of these buyers fell to the lowest level in nearly three decades: 33% this year, down from 38% a year ago. The long-term average, dating back to 1981, shows that 4 out of 10 purchases are by first-time buyers. So what’s to blame?

Tough to Save:

“Rising rents and repaying student loan debt makes saving for a down payment more difficult, especially for young adults who’ve experienced limited job prospects and flat wage growth since entering the workforce,” said Lawrence Yun, chief economist of the NAR. “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.”

Tough Mortgage Process:

Nearly half of those surveyed by the NAR said the mortgage application and approval process was much more, or somewhat more, difficult than expected. A recent decision on forthcoming regulations governing mortgage lenders could help ease credit criteria slightly, but lending will not go back to the loose days of the last housing boom.

Sticker Shock:

But the bigger concern is sticker shock. Home prices bounced off the bottom far more quickly than most had expected, thanks to heavy, all-cash investor interest. Prices rose considerably faster than income growth, and now that investors have slowed their purchases, mortgage-dependent buyers are not picking up the slack, even as rents continue to rise. Higher rents, in turn, are keeping some borrowers from saving for a down payment.

Financing is not, however, the only reason for the surge in renting. Younger Americans lived through the housing crash and many saw their parents’ savings and home equity decimated. Renting now carries far less of a negative stigma than it did just a decade ago. Renting is now becoming more of a choice than a necessity.

“We are seeing a more mature renter, somebody to whom price is not a large decision-making factor, but we’re also seeing the type of renter who just wants to live in an environment that feels much more like a neighborhood,” said Stephanie Williams, a senior vice president at The Bozzuto Group in Washington, D.C.

“In a neighborhood like this you will pay a premium for what you’re getting, but the reality is what we see here in D.C. is that the renters can afford to do that. We have a fairly low rent-to-income ratio in the district, which is telling us people do have the income,” added Williams.


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