First-Time Home-Buying Lowest Since 1987

The downward-drifting participation of first-time homebuyers over the last few years has brought their share of the home buying market to its lowest point in nearly three decades the National Association of Realtors® (NAR) said today.  The absence of this critical market force, NAR said, is preventing a healthier housing market from reaching its full potential.

NAR's survey of which evaluates the demographics, preferences, motivations, plans, and experiences of recent home buyers and sellers, has been conducted since 1981.  Over the long term of the survey four of ten primary owner-occupied home purchases have been made by first-timers.  The 2014 Profile of Home Buyers and Sellers growing out of that survey puts the first time buyer share this year at 33 percent, down 5 percentage points from last year and the lowest share since 1987 where first time buyers bought only 30 percent of the homes sold.

Despite an improving job market and the continuing low interest rates NAR chief economist Lawrence Yun says there are many obstacles young adults must overcome on their path to homeownership. "Rising rents and repaying student loan debt makes saving for a downpayment more difficult, especially for young adults who've experienced limited job prospects and flat wage growth since entering the workforce," he said. "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."

Yun adds, "Stronger job growth should eventually support higher wages, but nearly half (47 percent) of first-time buyers in this year's survey (43 percent in 2013) said the mortgage application and approval process was much more or somewhat more difficult than expected. Less stringent credit standards and mortgage insurance premiums commensurate with current buyer risk profiles are needed to boost first-time buyer participation, especially with interest rates likely rising in upcoming years." 

The median age of first-time buyers was 31, unchanged from the last two years, and when asked more than half said their primary reason for purchasing was a desire to own a home of their own.  These buyers had a median income of $68,300, $900 more than in 2013, and typically purchased a 1,570 square-foot home costing $169,000. 

The typical repeat buyer in contrast was 53 years old with a median income of $95,000 and bought a median 2,030 square foot house for $240,000.  A job-related move was the most common reasons for a repeat purchase (12 percent).  Eleven percent wanted a home in a better area, and another 10 percent said they wanted a larger home.  Other reasons were given in the single digits.

The overall demographics of all buyers in the survey was largely unchanged from 2013.  Sixty-five percent of buyers were married couples, 16 percent single women, 9 percent single men and 8 percent unmarried couples. 

Eighty-eight percent of survey respondents used a mortgage to purchase their home with younger buyers financing 97 percent of the time and older buyers (over 64 years of age) 64 percent.  First time buyers made a median down payment of 6 percent and repeat buyers 13 percent.  About a quarter of first time buyers said saving up for a downpayment had been difficult and 57 percent of those said student loan obligations had delayed accumulating the necessary funds compared to 54 percent last year.  First-time buyers tended to use other resources in addition to their own savings - 26 percent received a gift from friends or relatives, 6 percent received a loan from family or friends, and ten percent sold investments or tapped into a 401(k) fund.

Ninety-three percent of entry-level buyers chose a fixed-rate mortgage.  Low-downpayment FHA-backed mortgages were chosen by 35 percent, down from 39 percent in 2013.  Nine percent obtained a no-downpayment VA loan.  

Yun said that, by comparison, 56 percent of first-time buyers had used an FHA loan in 2010 but "FHA premiums are too high in relation to default rates and have likely dissuaded some prospective first-time buyers from entering the market. The current high mortgage insurance added to their monthly payment is likely causing some young adults to forgo taking out a loan."  

While buyers used a wide variety of resources in searching for a home, the Internet was fairly universal, utilized by 92 percent and 87 percent consulted a real estate agent.  Mobile or tablet applications were used by 50 percent of purchasers while the old standbys of yard signs and open houses were used by slightly less than half.

Buyers most frequently learned first about the home they purchased from the Internet, 43 percent.  This was the same percentage as last year but up from 36 percent in 2009.  One third learned first from a real estate agent; 9 percent a yard sign or open house; 6 percent from a friend, neighbor or relative; 5 percent from home builders; 3 percent directly from the seller; and 1 percent a print or newspaper ad.

The typical buyer visited 10 homes and bought two weeks quicker than last year (10 weeks compared to 12 in 2013). Overall, 89 percent were satisfied with the buying process.

Seventy-nine percent of respondents purchased a detached single-family home, 8 percent a townhouse or row house, 8 percent a condo and 6 percent some other kind of housing. First-time home buyers were slightly more likely (10 percent) to purchase a townhouse or a condo than repeat buyers (7 percent). The typical home had three bedrooms and two bathrooms.

Recent sellers responding to the NAR survey this year were typically 54 years old, married and with a household income of $96,700.  Sellers had lived in their homes for ten years - a new high for tenure in the home and attributable in part to the housing crash.   Seventeen percent said they had wanted to sell earlier but were stalled because their home had been worth less than their mortgage.

Sellers realized a median equity gain of $30,100 ($25,000 in 2013) - a 17 percent increase (13 percent last year) over the original purchase price. Sellers who owned a home for one year to five years typically reported higher gains than those who owned a home for six to 10 years, underlining the price swings since the recession.

The median selling time dropped from five weeks on the market last year to four.  Sellers moved a median distance of 20 miles and approximately 71 percent moved to a larger or comparably sized home.

For the past three years, 88 percent of sellers have sold with the assistance of an agent and only nine percent of sales have been for-sale-by-owner, or FSBO sales, the same as last year and 2010 and 2012.  The record high for FSBO sales was 20 percent in 1987.

NAR's buyer and seller survey is conducted by mail.  A 127-question survey was sent in July to buyers who had purchased a home between July 2013 and June 2014.  A total of 6,572 responses were received.