If you bought your first home in the past year, consider yourself one of the lucky few.
Soaring home prices and rising interest rates pushed the share of new home buyers to an all-time low, according to a new report from the National Association of Realtors. And those early buyers were the oldest they’ve ever been, as the growing lack of affordability forced people to wait longer to reach life milestones, like buying a home.
According to the NAR 2022 report on home buyers and sellers, first-time buyers made up just 26% of all home buyers in the year ending June 2022, down from 34% the year before. That was the lowest in the study’s 41-year history. The share of first-time buyers has fallen between 30% and 40% over the past decade, reaching 50% in 2009.
The age of a first-time homebuyer also rose, with a typical age of 36, compared to 33 last year. The age of the typical returning buyer also rose, reaching 59 years, up from 56. Both are record highs.
As home prices rose and mortgage rates rose, buyers’ incomes fell, the report found.
Median household income for first-time buyers fell to $71,000 during the year ended June, down from $86,500 in the prior 12-month period. Meanwhile, returning buyers had a median income of $96,000, down from $112,500 the previous year.
Buyers typically bought their homes for 100% of the asking price, research found, with 28% paying more than the asking price.
“For first-time homebuyers, the lack of affordability plays a key role in keeping home from owning,” said Jessica Lautz, NAR’s vice president of demographics and behavioral insights. “They don’t have the equity that returning buyers have for a down payment or to buy cash. They have to save while paying more for rent, as well as for student debt, childcare and other expenses, and this year they faced rising house prices while mortgage rates also rose.”
The period covered by the survey, from July 2021 to June 2022, included some of the steepest house price increases, with the median home price peaking at $413,800 last June. Inventory, hampered by decades of underbuild, was at an all-time low, leaving competition to buy a home fierce and driving prices higher. In April of this year, mortgage interest rates started to rise above 5%. But after the Fed began a series of rate hikes to curb inflation, they climbed as high as 7% in late October. On Thursday, mortgage rates fell slightly to 6.95%.
Together, these factors have created one of the most challenging and least affordable housing markets in decades.
Economists and housing advocates have warned that the increasingly unaffordable housing market is keeping many would-be buyers, especially those of color, out of their homes.
The survey found that there were fewer black and Asian homebuyers in the year under review, while the proportion of white and Hispanic buyers grew.
During the year ended June, the vast majority of buyers, 88%, were white, up from 82% last year. 8% of all home buyers were Hispanic, compared to 7%. Meanwhile, 3% were Black and 2% Asian, both down from 6% a year ago.
This is likely to exacerbate the racial home ownership gap, in which 72% of white Americans are homeowners, while only 43% of black Americans own a home, according to NAR.
“We’ve talked about the effects, but this year we’re seeing it realized in the data,” Lautz said. “Unless we have substantial housing development at affordable prices, we will hold back new home buyers.”
Lautz said previous NAR research has shown that potential black homebuyers have lower incomes, higher debts and less likely to receive family support for a down payment than other groups. The data also showed that black tenants are also under more pressure, with a higher proportion paying more than 30% of their income to their landlord.
“With the rise in rents and how that affects first-time homebuyers, it’s impacting black buyers more than any other group,” Lautz says.
Due to the affordability crisis, homebuyers seemed less able or interested to buy in the area where they currently live. The median distance between a buyer’s current home and their newly purchased home was typically 15 miles between 2018 and 2021. The average distance during the year ending June 2022 was 50 miles.
Lautz said the research showed buyers faced tough decisions to close the deal on a home they could afford.
The typical home purchased was 1,800 square feet, had three bedrooms and two bathrooms, and was built in 1986, the NAR report found. That is a smaller and older house than in previous years.
“For many people, something had to be included in the equation: their location, the condition of the house, or the size,” Lautz said.