First-Time Home-Buying Lowest Since 1987

Therndownward-drifting participation of first-time homebuyers over the last fewrnyears has brought their share of the home buying market to its lowest point inrnnearly three decades the National Association of Realtors® (NAR) saidrntoday.  The absence of this criticalrnmarket force, NAR said, is preventing a healthier housing market from reachingrnits full potential.</p

NAR’srnsurvey of which evaluates the demographics, preferences, motivations, plans,rnand experiences of recent home buyers and sellers, has been conducted sincern1981.  Over the long term of the survey fourrnof ten primary owner-occupied home purchases have been made by first-timers.  The 2014 Profile of Home Buyers andrnSellers growing out of that survey puts the first timernbuyer share this year at 33 percent, down 5 percentage points from last yearrnand the lowest share since 1987 where first time buyers bought only 30 percentrnof the homes sold. </p

Despite anrnimproving job market and the continuing low interest rates NAR chief economistrnLawrence Yun says there are many obstacles youngrnadults must overcome on their path to homeownership. “Rising rents and repayingrnstudent loan debt makes saving for a downpayment more difficult, especially forrnyoung adults who’ve experienced limited job prospects and flat wage growthrnsince entering the workforce,” he said. “Adding more bumps in the road, is thatrnthose finally in a position to buy have had to overcome low inventory levels inrntheir price range, competition from investors, tight credit conditions and highrnmortgage insurance premiums.” </p

Yunrnadds, “Stronger job growth should eventually support higher wages, but nearlyrnhalf (47 percent) of first-time buyers in this year’s survey (43 percent inrn2013) said the mortgage application and approval process was much more orrnsomewhat more difficult than expected. Less stringent credit standards andrnmortgage insurance premiums commensurate with current buyer risk profiles arernneeded to boost first-time buyer participation, especially with interest ratesrnlikely rising in upcoming years.”  </p

The<bmedian age of first-time buyers was 31, unchanged from the last two years, andrnwhen asked more than half said their primary reason for purchasing was a desirernto own a home of their own.  These buyersrnhad a median income of $68,300, $900 more than in 2013, and typically purchasedrna 1,570 square-foot home costing $169,000. rn</p

Therntypical repeat buyer in contrast was 53 years old with a median income ofrn$95,000 and bought a median 2,030 square foot house for $240,000.  A job-related move was the most commonrnreasons for a repeat purchase (12 percent). rnEleven percent wanted a home in a better area, and another 10 percentrnsaid they wanted a larger home.  Otherrnreasons were given in the single digits. </p

Thernoverall demographics of all buyers in the survey was largely unchanged fromrn2013.  Sixty-five percent of buyers werernmarried couples, 16 percent single women, 9 percent single men and 8 percentrnunmarried couples.  </p

Eighty-eightrnpercent of survey respondents used a mortgage to purchase their home withrnyounger buyers financing 97 percent of the time and older buyers (over 64 yearsrnof age) 64 percent.  First time buyersrnmade a median down payment of 6 percent and repeat buyers 13 percent.  About a quarter of first time buyers saidrnsaving up for a downpayment had been difficult and 57 percent of those saidrnstudent loan obligations had delayed accumulating the necessary funds comparedrnto 54 percent last year.  First-timernbuyers tended to use other resources in addition to their own savings – 26 percentrnreceived a gift from friends or relatives, 6 percent received a loan fromrnfamily or friends, and ten percent sold investments or tapped into a 401(k)rnfund.</p

Ninety-threernpercent of entry-level buyers chose a fixed-rate mortgage.  Low-downpayment FHA-backed mortgages werernchosen by 35 percent, down from 39 percent in 2013.  Nine percent obtained a no-downpayment VArnloan.  </p

Yunrnsaid that, by comparison, 56 percent of first-time buyers had used an FHA loanrnin 2010 but “FHA premiums are too high in relation to default rates and havernlikely dissuaded some prospective first-time buyers from entering the market. Therncurrent high mortgage insurance added to their monthly payment is likelyrncausing some young adults to forgo taking out a loan.”   </p

Whilernbuyers used a wide variety of resources in searching for a home, the Internetrnwas fairly universal, utilized by 92 percent and 87 percent consulted a realrnestate agent.  Mobile or tabletrnapplications were used by 50 percent of purchasers while the old standbys ofrnyard signs and open houses were used by slightly less than half. </p

Buyersrnmost frequently learned first about the home they purchased from the Internet,rn43 percent.  This was the same percentagernas last year but up from 36 percent in 2009. rnOne third learned first from a real estate agent; 9 percent a yard signrnor open house; 6 percent from a friend, neighbor or relative; 5 percent fromrnhome builders; 3 percent directly from the seller; and 1 percent a print orrnnewspaper ad. </p

Therntypical buyer visited 10 homes and bought two weeks quicker than last year (10rnweeks compared to 12 in 2013). Overall, 89 percent were satisfied with thernbuying process. </p

Seventy-ninernpercent of respondents purchased a detached single-family home, 8 percent arntownhouse or row house, 8 percent a condo and 6 percent some other kind ofrnhousing. First-time home buyers were slightly more likely (10 percent) tornpurchase a townhouse or a condo than repeat buyers (7 percent). The typicalrnhome had three bedrooms and two bathrooms.</p

Recentrnsellers responding to the NAR survey this year were typically 54 years old,rnmarried and with a household income of $96,700. rnSellers had lived in their homes for ten years – a new high for tenure inrnthe home and attributable in part to the housing crash.   Seventeen percent said they had wanted to sellrnearlier but were stalled because their home had been worth less than theirrnmortgage.</p

Sellersrnrealized a median equity gain of $30,100 ($25,000 in 2013) – a 17 percentrnincrease (13 percent last year) over the original purchase price. Sellers whornowned a home for one year to five years typically reported higher gains thanrnthose who owned a home for six to 10 years, underlining the price swings sincernthe recession. </p

Thernmedian selling time dropped from five weeks on the market last year tornfour.  Sellers moved a median distance ofrn20 miles and approximately 71 percent moved to a larger or comparably sizedrnhome. </p

Forrnthe past three years, 88 percent of sellers have sold with the assistance of anrnagent and only nine percent of sales have been for-sale-by-owner, or FSBO sales,rnthe same as last year and 2010 and 2012. rnThe record high for FSBO sales was 20 percent in 1987. </p

NAR’srnbuyer and seller survey is conducted by mail. rnA 127-question survey was sent in July to buyers who had purchased arnhome between July 2013 and June 2014.  Arntotal of 6,572 responses were received. 

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