November 4, 2022 | Jack Jenkins Homes
The Number of First-Time Homebuyers Hits Record Low, Survey Finds
Buying a home over the past year has been a bit like competing in “The Hunger Games.” First-time buyers faced off against investors and fellow purchasers wielding all-cash offers well over the asking price for a dwindling number of properties to choose from.
As home prices soared to previously unimaginable heights, fewer have been able to gain a toehold into homeownership, according to the National Association of Realtors® 2022 Profile of Home Buyers and Sellers. In fact, only about a quarter of all home sales (26%) were attributed to first-time buyers—the lowest percentage in the report’s 41-year history. It’s a big drop from the previous year, when this group represented about a third (34%) of all purchasers.
The report is based on an NAR survey of 4,854 buyers who purchased primary homes between July 2021 and June 2022. Investment and vacation home purchases were excluded from this report. Income data is from 2021.
“The drop in first-time buyers is now at a record low,” says Jessica Lautz, vice president of research at NAR. “It’s not necessarily a surprise because we know first-time homebuyers are facing not only an affordability crisis—but a lack of homes for sale as well as outside pressures like the rise in the cost of rents, which makes it difficult to save for a down payment.”
The housing market wasn’t just challenging for first-timers. It was daunting even for seasoned buyers grappling with a record dearth of homes for sale, heated bidding wars, and the pressure to waive crucial contingencies just to have a seller consider an offer. Rising inflation, higher rents, and increasing mortgage interest rates also cut into buyer budgets.
Watch: As Mortgage Rates Surpass 7%, What’s in Store for Homebuyers?
As the COVID-19 pandemic dragged on and prices kept soaring, buyers became eager to relocate much farther out where they could get more house for less money. They moved about 50 miles away from their previous homes—compared with just 15 miles in the past few preceding years.
Many were able to widen their searches because they were allowed to work remotely or commute to their offices for part of the week.
“It finally gave people freedom to move to a place where they could have more square footage, where they could have a bigger yard,” says Lautz.
In addition, many wanted to be closer to family and friends.
“This is certainly a factor that has become more important to everyone during the pandemic,” says Lautz.
The exodus to more rural areas shows in the NAR report: Interest in city living waned as just 10% of buyers closed in urban areas, down from 13% last year. Meanwhile, small towns jumped in popularity from 20% of sales in 2021 to 29% of sales in 2022. Rural communities went from 12% to 19%.
The largest portion of sales (39%) were still in the suburbs. However, sales fell from 51% in the prior year due to a lack of homes for sale and surging prices.
First-time homebuyers struggle to become homeowners
Those first-time buyers who beat the odds to successfully close on their homes tended to be older than in years past, likely because they had more time to save money or move further up the career ladder into better-paying jobs. Their median age was 36—up from 33 last year.
Even so, many struggled to come up with a down payment, which averaged about 6% of the home’s purchase price for this group. About 22% relied on monetary gifts or loans.
Nearly all first-time buyers (97%) needed a mortgage to tap into homeownership. (First-time buyers are typically younger, more cash-strapped, and don’t yet have equity to use on a new home purchase like repeat buyers might.) And what they did buy tended to be smaller: Their homes clocked in at a median 1,550 square feet—compared with 1,800 square feet for all buyers.
About 29% of buyers were single, 18% were unmarried couples, and 5% were other household combinations, which could be friends or roommates pooling their money to purchase property together.
“We know that first-time homebuyers are having to save for a longer period of time and are struggling for a longer period of time to be able to purchase a home,” says Lautz.
Who successfully purchased homes in the past year?
No matter their circumstances, homebuying hasn’t been an easy feat for just about anyone.
Buyers who made it happen over the past year tended to be older and in better financial shape than the general public. They also tended to be straight, white, and married.
Those who went under contract in the past year were a median 53 years old—up from 45 last year. They had household incomes of $88,000—about 24% higher than the national median of $70,784, according to U.S. Census Bureau data.
Buyer incomes weren’t as high as last year partly because many retirees and about-to-be retirees working part time were able to sell their homes for small fortunes and then use the profits to purchase properties elsewhere.
“They have the housing wealth but not necessarily the income,” says Lautz. “You may be able to purchase with a lower income because you’re making that overt choice to move to that more affordable location.”
More than half of all buyers, 58%, had earned a bachelor’s degree or an advanced degree; 16% had an associate’s degree; and 2% hadn’t finished high school.
Nearly two-thirds of buyers, 61%, were married; 17% were single women; and 9% were single men.
Not much progress appeared to have been made in helping more people of color become homeowners. Minorities continued to make up just a fraction of buyers as discriminatory housing policies from decades past and banking practices that penalize lower-income communities continued to hinder homeownership. Just 3% of all buyers were Black, 2% were Asian, and 8% were Hispanic. An overwhelming 88% were white.
“It has to do with housing affordability,” Lautz says of the fewer Black and Asian buyers. “Black renters are paying a disproportionate amount of their income on rent, making it harder for them to save for a down payment. Asian homebuyers are more likely to purchase homes in the West region, which has the most affordability issues.”
Just 2% of gays and lesbians and 2% of bisexuals, another group that has faced housing discrimination, closed on homes. About 78% used a mortgage. While that sounds high, it’s down from 87% in the previous year.
Buyers generally searched the market for about 2.5 months before closing—about two weeks more than is typical.
Home sellers were sitting pretty last year
Sellers were in a great position last year. There was a dire shortage of properties available, everyone seemed to want one, and mortgage interest rates were hovering around record lows. (Mortgage rates have since surpassed 7% for 30-year fixed-rate loans.) That led prices to soar and allowed them to call the shots.
Their top reason for putting their homes up for sale were wanting to be closer to family and friends (21%), moving for retirement (11%), or their neighborhood was becoming less desirable (11%).
Most were also buyers. About 41% purchased larger homes,, while 32% bought homes with equivalent square footage.
Home sellers were older and more likely to stay in their homes for longer. This might have been due to fears about contracting COVID-19.
They were about 60 years old, compared with 56 in the previous year. They lived in their homes for about a decade before listing them, up from eight years in 2021. They were also overwhelmingly white, making up 95% of those listing their properties.
“They’re receiving all of their asking price and selling [their properties] within two weeks,” says Lautz. “They generally were satisfied with their home-selling experience.”
What kinds of homes buyers purchased
Buyers seemed to want the same things they did even before the pandemic: detached, single-family homes. The typical home purchased had three bedrooms and two bathrooms and spanned about 1,800 square feet. That was about 100 fewer square feet than last year, but that is likely due to fewer of those larger homes becoming available at a price range that buyers could afford.
About 79% of sales were for detached, single-family homes, the personification of the American dream. About 8% of sales were for mobile homes, 4% were for cabins and cottages, 3% were for townhomes, and 2% were for duplexes, co-ops, and condos.
Most bought generally more affordable existing homes, 88%, versus just 12% who purchased typically more expensive, newly constructed residences. The typical home was built in 1986.
“We know that buyers are making compromises on the home because of affordability,” says Lautz.
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