More first-time homebuyers returned to the market last year, but they had to come with bigger wads of cash.
Between July 2022 and June 2023, first-time homebuyers made up 32% of all buyers, according to the National Association of Realtors’ (NAR) annual report, which profiles homebuyers and sellers using data from 6,817 survey respondents. While that’s still below the two-decade average of 36.6%, it’s up from 26% last year, which was the lowest in the report’s history.
The rise in first-time buyers doesn’t mean that home ownership is back on the table for everyone. A large proportion of these first-time buyers were wealthier, one of the researchers said, allowing them to circumvent the ongoing affordability problems plaguing the market.
“Because of the rising interest rate, the buyers competing in the market were higher-income buyers who had the ability to compete,” Dr Jessica Lautz, NAR’s deputy chief economist, told Yahoo Finance.
Limited inventory and the resulting high prices squeezed out middle-income buyers in 2023.
The median income of the US homebuyer jumped 21.6% to $107,000 this year from $88,000, according to NAR’s 2023 report. The median household income for repeat buyers was $111,700, up 16.4% from the previous report. And first-time buyers reported a median income of $95,900, up a whopping 35% from last year’s $71,000.
All were well above the national median income of $74,580 in 2022.
“While prices have moderated recently, they are still very high relative to pre-2020 levels,” Tim Shaw, policy director at the Aspen Institute, wrote to Yahoo Finance. “In some respects, homebuyers’ incomes are just catching up.”
For example, home prices hit a record high in June 2022, according to the S&P CoreLogic Case-Shiller National Home Price Index, before declining as mortgage rates rose. That decline was reversed this year, with the index hitting a new high in July and then another in August.
“And of course, high mortgage rates change the price and affordability calculus tremendously,” Shaw added.
From June 2022 to June 2023 – during the NAR’s reporting period – the 30-year mortgage rate jumped from 5.09% to 6.79%, briefly topping 7% in November 2022. Since then, the rate has continued to rise and has been above 7% for 13 consecutive weeks, according to Freddie Mac.
One way to mitigate the rise in mortgage rates is to put more money down on a purchase. And that’s exactly what buyers have been doing.
The typical deposit for first-time buyers was 8% of the purchase price, the highest proportion since 1997 when it was 9%. The average down payment for repeat buyers was 19%, the highest share since 2005, when it was 21%, the NAR said.
An earlier measure of down payments found that the median down payment in the US rose 11.3% year-over-year in the third quarter to $30,434, the highest since Realtor.com began tracking the data in 2013.
To put that cash on the table, first-time buyers relied more heavily on financial assets this year. The NAR found that 24% of buyers sold stocks, bonds or cryptocurrency, or tapped into a 401(k), pension or IRA, up from 20% last year.
For middle-income earners, the likelihood of achieving the American dream of owning a home seems slim, even though it’s the biggest reason people are jumping into the market.
The top reason first-time buyers wanted a home remained consistent in 2023 compared to previous years. The NAR found that 60% of new American buyers said it was their desire to own a home that motivated them.
“That’s the number one reason to buy,” Lautz said. “It’s just to have it for themselves, and I suspect it really just comes down to the American dream of homeownership.”
A dream that seems to be slipping away for many.
Nearly 3 in 4 renters don’t think they’ll ever be able to afford a home, according to a survey of 1,000 renters by Home Bay, a digital real estate brokerage. And two-thirds of renters say today’s home prices make them pessimistic about the housing market.
Fannie Mae’s latest monthly housing sentiment surveys show that the gloom hasn’t disappeared – 85% of respondents in October’s survey said it was a bad time to buy a home.
“We’re certainly hearing hopelessness and frustration about the ability to buy a home,” Shaw said. “It’s hard to know if the trend is going to get better or worse, because part of the affordability issue is the interest rate environment we’re in.”
