While homeownership may be considered the American dream, a number of people had difficulty making this dream a reality over the past year, as the number of first-time home buyers fell to a low last seen during the Reagan administration.
Of the residences in the U.S. purchased in the past 12 months, slightly less than 33 percent were done by individuals who had never bought a house before, according to data from the National Association's annual Profile of Home Buyers and Sellers survey. That's down by 5 percent from 2013 and represents the lowest share since 1987. Tracing back to 1981, the long-term average has been four first-time buyers for every 10 houses purchased.
"Only 33 percent of primary residences purchased this year were among first-time buyers."
The report also examined what the typical first-time home buyer looks like, or more specifically, what their characteristics are in terms of age an average income. The median age for buyers was 31, which is on par with where its been since 2012, according to NAR. Additionally, their median income was $68,300 per year, up slightly from last year when it was $67,400. The properties buyers bought averaged about 1,570 square feet in size and cost $169,900.
Noting that first-time home buyers tend to be in their 20s and 30s, Lawrence Yun, NAR chief economist, indicated that young people are often faced with obstacles when it comes to achieving homeownership.
"Rising rents and repaying student loan debt makes saving for a down payment more difficult, especially for young adults who've experienced limited job prospects and flat wage growth since entering the workforce," said Yun. "Adding more bumps in the road, is that those finally in a position to buy have had to overcome low inventory levels in their price range, competition from investors, tight credit conditions, and high mortgage insurance premiums."
Limited access to credit
What's further fueling the problem is credit availability, due primarily to strict lending requirements. Yun indicated that in this year's survey, roughly half of first-time buyers found the mortgage approval process to be more difficult than they'd anticipated, up from 43 percent last year.
"Less stringent credit standards and mortgage insurance premiums commensurate with current buyer risk profiles are needed to boost first-time buyer participation, especially with interest rates likely rising in upcoming years," said Yun.
In October, the Mortgage Bankers Association confirmed that mortgage credit availability dropped by nearly 3 percent from the same period last year, suggesting that lending standards are, in fact, tightening.
An easing of mortgage credit access may be on the way, however, thanks to recent changes being made to some lending rules, implemented by the Consumer Financial Protection Bureau. Among the adjustments, one will help give nonprofit organizations an ability to provide mortgage credit and services to low- and moderate-income consumers.
Still, even if first-time buyers don't have problems with mortgage credit access, there's still the issue of saving, as there are many expenses associated with homeownership that may not be fully realized at first, such as homeowners insurance, closing costs, and maintenance. USA Today recently put together a list of tips to help prospective buyers with the financing process:
- Establish a budget. Every month, be sure to chart out what you spend your money on and how much these living expenses cost overall. So long as you're spending less than you earn, a budget will help you slowly build the savings you need to buy.
- Pursue payroll automation opportunities. After establishing a savings account, your employer may be able to devote a fixed amount of your paycheck to it. Get in touch with your human resources department to see if this is an option.
- Put in longer hours. It may not be easy, but you might want to consider spending more time at the office. The extra money you accumulate can go toward your home purchase savings account.
The first-time home buying process can certainly be complicated, but that doesn't mean it has to be daunting. Those looking to get into the market can help bring first-time home buyer levels back up by preparing ahead of time and learning all they can about the process.