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.”

With home sales jumping 4.5 percent in the West, pending home sales ended up rising 0.5 percent in September, according to the National Association of Realtors (NAR).

Pending home sales are contracts signed on homes for sale, so economists watch this indicator closely as a measure of the housing market’s health and an indicator of what will happen next.

But NAR is quick to point out that this slight uptick does not overshadow nine consecutive month of annual decreases.

NAR Chief Economist, Dr. Lawrence Yun calls it a “stabilizing trend,” that proves “buyers are out there on the sidelines, waiting to jump in once more inventory becomes available and the price is right.”

Beating a dead horse, Dr. Yun again points to the lack of inventory and affordability factors as restrictive, but asserting that the demand for housing “should remain steady.”

But with all other facets of the economy firing on all cylinders, why is the real estate market not exceeding expectations? Simple supply and demand – with homeowners seeing healthy gains in recent years, prices continue to rise alongside interest rates, and combined with inventory levels remaining tight, some buyers are simply left on the sidelines, regardless of their desire to buy.

Dr. Yun says this is about to change, pointing to annual increases in inventory in many major markets. In the past, he has noted one method to alleviate the supply/demand imbalance is for homebuilders to step up production, but as that has not happened, there is no expediting the natural process.

Further, performance varies between regions with pending home sales jumping 4.5 percent in the West (while dipping to 7.4 percent below a year ago), and 1.2 in the Midwest (only 1.1 percent below last year). Meanwhile, falling 0.4 percent in the Northeast (now 2.7 percent below September 2017), and 1.4 percent in the South (down 3.3 percent annually).

The wheels of the market are currently slowly moving, and the fed is expected to increase rates one more time this year, but NAR’s forward-looking indicator reveals a decent close to 2018.

Pending home sales (contract signings on homes) fell 1.8 percent in August, marking the eighth consecutive month of slight decreases, according to the National Association of Realtors.

This metric is important as it is an indicator of what is to come in the housing market.

As he has repeatedly in recent years, Dr. Lawrence Yun, NAR Chief Economist reiterates that tight inventory levels continue to restrict the market. He points directly Westward.

“The greatest decline [of pending home sales] occurred in the West region where prices have shot up significantly, which clearly indicates that affordability is hindering buyers and those affordability issues come from lack of inventory, particularly in moderate price points,” Dr. Yun observed.

Further. Dr. Yun asserts that rising prices has homeowners sitting on the sideline, hoping to accumulate more equity, but as values begin to decelerate, it is anticipated that more properties will come online, alleviating the inventory challenges that have long put a wet blanket on sales.

Regarding rising mortgage rates, Dr. Yun believes that while rising rates are always a deterrent to potential buyers, it should not lead to a significant decline.

“We have two opposing factors affecting the market: the negative impact of rising mortgage rates and the positive impact of continued job creation,” adding that “as long as there is job growth, rising mortgage rates will hinder some buyers; but job creation means second or third incomes being added to households which gives consumers the financial confidence to go out and make a home purchase.”

Dr. Yun projects that existing home sales will dip 1.6 percent his year, while the median home price will rise 4.8 percent. Next year, he projects existing sales are forecast to rise 2 percent and home prices around 3.5 percent.