It is not a good time to be a first-time homebuyer. As home prices continue to increase, setting one new record after another, first-time homebuyers are feeling the squeeze of the country’s challenging housing market.
The challenges of today’s tight housing market can be seen in new data from the National Association of Realtors (NAR), whose 2024 Profile of Home Buyers and Sellers, released November 4, showed that the number of first-time homebuyers in the past year dropped. Before 2008, the share of first-time homebuyers was roughly 40 percent, but NAR’s 2024 data showed that first-time buyers fell to a record low of 24 percent of all buyers in the past year – proof that high housing prices are significant hurdles for many would-be homeowners.
While first-time homebuyers are dwindling, the median age of these buyers is growing. NARS reports the median age of first-time buyers has risen to 38, the highest it’s ever been. The previous record was 36.
“We’re definitely seeing that due to decreased affordability, first-time buyers are holding off on purchasing their first home,” says Brandi Snowden, NAR’s director of member and consumer survey research.
Demands versus Reality
As recently as 2010, the median age of first-time homebuyers was 30; however, the larger price tags and ongoing shortage of homes have set a new age range for peak home-purchasing years.
“We have 50 million people in this country who are between 30 and 40 — peak homebuying years. We just have this enormous cohort of people who are looking for housing,” says Michael Fratantoni, chief economist at the Mortgage Bankers Association. “We have been underbuilding, and we have been underbuilding by a lot.”
The nation’s demands for housing have been ringing loud and clear in recent years, but since the Great Recession, builders have slowed down and shifted their focus away from starter homes and toward higher-priced, higher-profit new homes.
“The lack of entry-level homes is across the board, across the country,” Fratantoni says. “That is where the lack of supply is the tightest.”
Another issue contributing to the tough housing market is the lock-in effect. Moving is less ideal for many current homeowners with three percent mortgage rates because they would have to give up their historically cheap deals. This results in the continuing upward tick of home prices.
According to NAR, the nationwide median sale price in September was $404,500, a three percent increase from last year and the highest September median on record.
Soaring property insurance rates are another factor contributing to the record-setting high housing costs, with Allan Prindle, president and CEO of Power Financial Credit Union in Florida, stating, “There are a lot of factors conspiring to make first-time home buying a challenge.”
Tips for Buying in a Tough Market
Homeownership is still a high value for millennials and younger generations, but affordability presents challenges to achieving it. With pandemic-elevated housing costs, limited inventory, and higher mortgage rates, it may feel like homeownership is just out of reach, but here are some tips that can help you navigate this tough market.
First, look for loans with low down payments. FHA loans, which the Federal Housing Administration insures, enable borrowers to put down just 3.5 percent with a credit score of 580 or higher. USDA loans, guaranteed by the U.S. Department of Agriculture, and VA loans, offered by the U.S. Department of Veteran Affairs, require no down payments from borrowers.
If you are a first-time homebuyer, you also don’t want to overlook down payment assistance. Every state has these programs, and there are 2,244 such initiatives available nationally, says Rob Chrane, CEO of Down Payment Resource; it is just that many buyers and even real estate agents are unaware that these programs exist. Chrane says that while 80 percent of borrowers using FHA mortgages are eligible, just 15 percent receive down payment assistance.
Lastly, get creative. Alternative home-buying strategies, like house-hacking (buying a duplex or triplex) and co-buying (purchasing a home with someone other than your spouse), can lessen the financial burdens and expand your options. Other options include condos or townhomes. While you may not be able to get the white-picket-fence right now, that doesn’t mean you can’t find a place to call home. Getting creative in your search can help you find cheaper options.
