First-time buyer share of housing market thinning

November 3, 2014

WASHINGTON (11/4/14)--Demand from first-time homebuyers reached a historical low in the housing market this year, according to the results of an annual survey published Monday.

The percentage of first-time buyers dropped five points on a year-ago basis to 33% of the total market, according to the National Association of Realtors (NAR). The share of the market segment, which many consider crucial to the housing recovery, has not fallen this low since it dropped to 30% in 1987.

NAR said that while the survey typically shows 4 out of 10 transactions involving first-time homebuyers, market conditions are unfavorable to younger consumers.

"Rising rents and repaying student loan debt makes saving for a down payment more difficult, especially for young adults who've experienced limited job prospects and flat wage growth since entering the workforce," said Lawrence Yun, NAR chief economist. 

Twenty-three percent of first-time buyers said that saving for a down payment was difficult, with 57% claiming that student loan payments made it harder to save--up three percentage points on a year-ago basis. 

"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 added. 

Yun also said that stronger job growth should bolster the broad increases in wages needed to boost younger consumers, but warned that credit standards and mortgage insurance premiums need to fall "especially with interest rates likely rising in upcoming years." The share of fixed-rate, entry-level mortgage-borrowers with a loan backed by the Federal Housing Administration dropped to 35% in 2014 from 39% in 2013.

The survey showed that the demographics of homebuyers did not change much from last year, with married couples, single women, single men and unmarried couples respectively constituting 65%, 16%, 9% and 8% of buyers. The median age of first-time buyers, at 31 years old, also did not change.

Meanwhile, sellers have grown steadily older, with the median age at 54--up from 53 in 2013 and 46 in 2009. The market also saw sellers' median equity increase in 2014 to $30,100, up from $25,000 on an annual basis, with 17% reporting that they would have sold earlier but their homes were worth less than their mortgage--up from 13% in 2013. Reflecting the market's volatility over the past few years, sellers who had previously owned their home for between one and five years reported higher profit than those who had owned a home between six and 10 years.