As the housing market surged last year, a typically large segment of home buyers went missing. Amid higher home prices, bidding wars and fierce competition for limited inventory, first-time home buyers dropped to their lowest numbers on record, according to the National Association of REALTORS®’ 2022 Profile of Home Buyers and Sellers. Further, the age of the typical first-timer swelled to a record high of 36, NAR data shows.
“It’s not surprising that the share of first-time buyers shrank to the lowest level ever recorded given the housing market’s combination of historically low inventory, persistently high home prices and rapidly escalating interest rates,” says Jessica Lautz, NAR’s vice president of demographics and behavioral insights. “Those who have housing equity hold the cards, and they’ve fared very well in the current real estate market. First-time buyers are older as a result of saving for down payments for longer periods of time or relying on a generational transfer of wealth to propel them into homeownership.”
First-time buyers comprised just 26% of all buyers in 2022, down from 34% the year before. That’s also nearly half of the 50% peak share first-timers reached in 2010, which was mostly triggered by the First-Time Home Buyer Tax Credit. “Since 2011, the share of first-time home buyers has been under the historical norm of 40% as buyers face tight inventory, rising home prices, rising rents and high student debt loads,” NAR’s report notes.
Forgetting the Starter Home
Faced with surging rents over the past year, first-time buyers are struggling to save enough to afford a home. For example, 92% of first-timers recently surveyed by ConsumerAffairs.com say they cannot afford a mortgage in the current market. Nearly 63% of all consumers say they’re willing to move to a state with a cheaper cost of living in order to afford a home, the survey shows.
Saving for a down payment is the biggest obstacle to homeownership that first-time home buyers cite, and they’re looking for financial help. Twenty-two percent of first-time buyers have used a gift or loan from friends and family to come up with a down payment, according to the NAR study. The typical down payment for first-time buyers was 6% in 2022 compared to 17% for repeat buyers.
Further, the idea of a “starter home” is becoming less practical as more first-time buyers say they intend to stay a long period of time in the property they buy. The median expected home tenure for first-time buyers has risen to a record high of 18 years, up from 10 years in 2021, according to NAR.
First-time home buyers also are pooling resources to afford homeownership. Notably, 15% purchased a multigenerational home over the past year to accommodate aging parents, grandparents or adult siblings, according to NAR’s survey. That is slightly higher than repeat buyers (14%). The biggest reason first-time buyers cite for purchasing a multigenerational home was wanting “a larger home that multiple incomes could afford together” (28%) and for “cost savings” (28%).