The share of first-time homebuyers continues to fall, amidst rising interest rates and home prices, and diminishing inventory levels, despite “notable interest” in buying, according to the National Association of Realtors (NAR). The share dipped to 33 percent (down from 34 percent last year), not hitting 40 percent or higher since the homebuyers credit ended in 2010.
“With the lower end of the housing market – smaller, moderately priced homes – seeing the worst of the inventory shortage, first-time homebuyers who want to enter the market are having difficulty finding a home they can afford,” said NAR Chief Economist Lawrence Yun. “Homes were selling in a median of three weeks and multiple offers were a common occurrence, further pushing up home prices. These factors contributed to the low number of first-time buyers and the struggles of would-be buyers dreaming of joining the ranks of homeownership.”
Housing starts remain lower than the market demands and student loan debt continues to keep interested buyers in the rental market. Half of those surveyed indicated that student loan debt restricted their ability to save for a down payment or a home purchase, and one quarter carry student loan debt of around $28,000 while 40 percent carry a median of $30,000 in student loan debt.
“Even with a thriving economy and an abundance of job opportunities in many markets, monthly student loan payments coupled with sky-high rents and rising home prices make it exceedingly difficult for potential buyers to put aside savings for a down payment,” said Yun.
The average size of a down payment rose to 13 percent in 2018 (up from 10 percent last year, and the highest since 2005), with first time buyers putting down a median 7.0 percent (up from 5.0 percent last year), the highest since 1997.
Most buyers (58 percent) cite personal savings as their primary source of a down payment, and 24 percent of first time buyers were the most likely to use a gift from a friend or relative (24 percent).
A bright spot of NAR’s newest data is that single female buyers are a “strong force in the market,” accounting for 18 percent of all buyers, the second most common buyer behind married couples (63 percent). Single male buyers account for 9.0 percent of all homebuyers, but tended to purchase more expensive homes (median price of $215,000 versus single females’ $189,000 average price).
“Low inventory, rising interest rates and student loan debt are all factors contributing to the suppression of first-time home buyers,” said Yun. “However, existing home sales data shows inventory has been rising slowly on a year-over-year basis in recent months, which may encourage more would-be buyers who were previously convinced they could not find a home to enter the market.”