The declining number of first-time home buyers in the market is the major missing piece in the housing recovery, says Lawrence Yun, the chief economist for the National Association of REALTORS®.
Despite an uptick in home sales over the past year, the share of first-time home buyers in the housing market dropped for the third consecutive year, and remains at its lowest point in nearly three decades, according to the NAR 2015 Profile of Home Buyers and Sellers report.
The increase in home sales over the past year has instead been driven by more repeat buyers with dual incomes, NAR’s report showed.
The share of first-time buyers fell to 32 percent in this year’s survey; last year first-time home buyers represented 33 percent of the market share. The share of first-time home buyers this year is at its lowest point since 1987, when first-time home buyers represented 30 percent of the market.
Historically, first-time home buyers typically represent nearly 40 percent of primary purchases.
“There are several reasons why there should be more first-time buyers reaching the market, including persistently low mortgage rates, healthy job prospects for those college-educated, and the fact that renting is becoming more unaffordable in many areas,” Yun says. “Unfortunately, there are just as many high hurdles slowing first-time buyers down. Increasing rents and home prices are impeding their ability to save for a down payment, there’s scarce inventory for new and existing-homes in their price range, and it’s still too difficult for some to get a mortgage.”
Twenty-five percent of would-be first-time home buyers said that saving for a down payment was the most difficult task in home ownership, and 58 percent reported student loans in particular were delaying their ability to save.
“With a median amount of student loan debt for all buyers at $25,000, it’s likely some younger households with even higher levels of debt can’t save for an adequate down payment or have decided to delay buying until their debt is at more comfortable levels,” Yun says.
Repeat buyers were mostly using the proceeds from the sale of their primary residence as their top source for a down payment on their next home purchase – 53 percent this year compared to 47 percent last year.
“With first-time buyers stuck on the sidelines, the majority of sales activity in most parts of the country is coming from pent-up sellers taking advantage of rising home values in their neighborhoods and using their equity to trade up or move down,” says Yun.
Married couples represented an increasing share of buyers: 67 percent of buyers were married couples (up from 65 percent last year). Married, repeat buyers have the highest income among all buyers too at $108,600.
Meanwhile, single females have been a growing share of buyers the past few years but are showing signs of retreating. The share of single, female buyers fell from 16 percent to 15 percent in the latest survey.
“Similar to some of the obstacles facing first-time buyers, tight credit conditions and having less purchasing power than households with dual incomes likely led to the share of single-female buyers declining to its lowest since 2001 (also 15 percent),” Yun says.