The first-time home buyer in 2023 looks a little different than it did when baby boomers were buying their first home. Thanks to higher home prices and average inventory, new homeowners tend to be older, earn more, and be single or childless than in the past.
It is according to the 2023 Profile of Home Buyers and Sellerspublished by the National Association of Realtors (NAR) Monday. NAR has published this report annually since 1981; this year, it is based on the responses of nearly 7,000 buyers who purchased a primary residence between July 2022 and June 2023.
It appears that the typical first buyer was 35 years old this year. That’s the second highest age in four decades according to NAR data — just behind last year’s 36 — and higher than when many baby boomers bought their first home. Despite mortgage rates reach 18% at the end of 1981, about 45% of baby boomers were able to buy their first house between the ages of 25 and 34, according to Berkeley Economic Review.
Reflecting the The growing unaffordability of the housing marketThey also earn more than past first-time buyers, reporting a median income of $95,900, up from $71,000 last year, and their typical down payment was 8%, the highest since 1997, when it was 9%.
They are also more likely to be single, much less likely to have children, and significantly more diverse. In fact, the NAR report found that only 52% of first-time buyers were married, compared to 63% of repeat buyers, and 36% had a child under 18 living at home, compared to 44% last year.
There are also more of them than last year. After falling to a record level of 26% of buyers in 2022, first-time buyers made a comeback this year, representing 32% of sales. While this is a promising trend for potential first-time buyers who are staying away, this figure remains well below the 38% average seen since 1981, and the fourth lowest share over this period.
The report highlights how millennials are still fighting to break into the real estate market— no matter how much it costs or how long it takes, the report shows, whether it’s cutting back on spending on luxuries and entertainment or even withdrawing money from a 401(k), stocks and cryptocurrency. In fact, nearly a quarter of first-time home buyers relied on these types of assets to purchase a home, and another 23% used a gift or loan from friends or family members to put down of funds.
Even though mortgage rates hover around 8% and housing prices have risen consecutive increases over seven months, one thing is obvious: Millennials are simply tired of waiting for a better housing market to buy. In fact, according to the NAR report, 60% of first-time home buyers said the primary reason for purchasing a home was the desire to own their own home, as opposed to moving for work or to move. get closer to their friends or family.
“The desire to own a home never really went away,” said Maureen McDermut, a real estate agent with Sotheby’s International-Montecitotell Fortune. “I think this is why, despite rising interest rates and property prices, many continue to enter the market. »
First-time home buyers are older than previous generations. And they’re tired of waiting
The trend of older first-time buyers is not expected to change immediately. Because housing market conditions are the least affordable As has been the case for decades, younger generations find themselves stuck, unable to afford a down payment on a median-priced home or the large mortgage payments that come with it. rate of 8%. This means fewer 20-somethings are able to break into the real estate market, increasing the age of first-time homebuyers.
“A lot of young people millennials and generation Z save in stay at home with their parents or even rent with friends to build a down payment on a house,” says McDermut. “As starter homes have been largely abandoned, it is almost essential to do so for the most part.”
Plus, millennials are tired of staying on the sidelines. They are entering their peak earning years and want to engage in family planning.
First-time home buyers have different motivations than repeat buyers and “advancement” buyers, Dan Green, founder and CEO of Homebuyer.coma mortgage company dedicated to first-time home buyers, tells Fortune. They are motivated by the 5 “Ds”: diamonds, diapers, diplomas, currency exchange and dogs, he says.
“Whether you’re getting married or having a baby, graduating, moving for a new job or wanting land for a dog, first-time buyers have put all these reasons aside over the past two years,” says Green. . “You can’t put off your life forever. »
Rent versus buy mentality
The age-old debate over whether to rent or buy is not lost on millennials, and it has become even more complicated as rental prices have risen alongside the cost of buying. Even if buying doesn’t seem like the solution same “agreement” as beforemany are still ready to take the plunge.
“Most first-time home buyers are 30-somethings looking to stay put for a while and prefer to hedge their bets by investing money in real estate relative to the market and paying rent,” Adie Kriegstein, a real estate agent from Real Estate Compass in New York, says Fortune. “Owning a home is a better investment than renting in the long term, and they are willing to get into the market when they can negotiate the price and lock in a rate between 7 and 7 percent. [to] 8% before they increase further.
Of course, the calculation depends on several factors, including location. The median home price in the United States is $311,500, according to the NSA U.S. National Housing Price Index S&P CoreLogic Case-Shillerbut this figure can vary considerably from market to market.
Take Los Angeles, for example, where the median home price exceeded $417,000 in August. according to Case-Shiller. Assuming the current mortgage rate of 7.4% and a 20% down payment, this buyer would have a monthly mortgage payment of over $2,300. However, the average rent in Los Angeles is $2,742, according to RentCafewhich makes buying a home cheaper than renting.
On the other hand, the price of an entry-level home in New York can be much higher than rent, Kriegstein says. It often takes buyers longer to save for the down payment.
“Every real estate market is niche,” she says. “As such, the amount needed for a down payment and the median price of a home vary widely. »