First-Time Home-Buying Lowest Since 1987

News

The
downward-drifting participation of first-time homebuyers over the last few
years has brought their share of the home buying market to its lowest point in
nearly three decades
the National Association of Realtors® (NAR) said
today.  The absence of this critical
market force, NAR said, is preventing a healthier housing market from reaching
its full potential.

NAR’s
survey of which evaluates the demographics, preferences, motivations, plans,
and experiences of recent home buyers and sellers, has been conducted since
1981.  Over the long term of the survey four
of ten primary owner-occupied home purchases have been made by first-timers.  The 2014 Profile of Home Buyers and
Sellers
growing out of that survey puts the first time
buyer share this year at 33 percent, down 5 percentage points from last year
and the lowest share since 1987 where first time buyers bought only 30 percent
of the homes sold.

Despite an
improving job market and the continuing low interest rates NAR chief economist
Lawrence Yun says there are many obstacles young
adults must overcome on their path to homeownership. “Rising rents and repaying
student loan debt makes saving for a downpayment more difficult, especially for
young adults who’ve experienced limited job prospects and flat wage growth
since entering the workforce,” he said. “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.”

Yun
adds, “Stronger job growth should eventually support higher wages, but nearly
half (47 percent) of first-time buyers in this year’s survey (43 percent in
2013) said the mortgage application and approval process was much more or
somewhat more difficult than expected. 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.” 

The
median age
of first-time buyers was 31, unchanged from the last two years, and
when asked more than half said their primary reason for purchasing was a desire
to own a home of their own.  These buyers
had a median income of $68,300, $900 more than in 2013, and typically purchased
a 1,570 square-foot home costing $169,000. 

The
typical repeat buyer in contrast was 53 years old with a median income of
$95,000 and bought a median 2,030 square foot house for $240,000.  A job-related move was the most common
reasons for a repeat purchase (12 percent). 
Eleven percent wanted a home in a better area, and another 10 percent
said they wanted a larger home.  Other
reasons were given in the single digits.

The
overall demographics of all buyers in the survey was largely unchanged from
2013.  Sixty-five percent of buyers were
married couples, 16 percent single women, 9 percent single men and 8 percent
unmarried couples. 

Eighty-eight
percent of survey respondents used a mortgage to purchase their home with
younger buyers financing 97 percent of the time and older buyers (over 64 years
of age) 64 percent.  First time buyers
made a median down payment of 6 percent and repeat buyers 13 percent.  About a quarter of first time buyers said
saving up for a downpayment had been difficult and 57 percent of those said
student loan obligations had delayed accumulating the necessary funds compared
to 54 percent last year.  First-time
buyers tended to use other resources in addition to their own savings – 26 percent
received a gift from friends or relatives, 6 percent received a loan from
family or friends, and ten percent sold investments or tapped into a 401(k)
fund.

Ninety-three
percent of entry-level buyers chose a fixed-rate mortgage.  Low-downpayment FHA-backed mortgages were
chosen by 35 percent, down from 39 percent in 2013.  Nine percent obtained a no-downpayment VA
loan.  

Yun
said that, by comparison, 56 percent of first-time buyers had used an FHA loan
in 2010 but “FHA premiums are too high in relation to default rates and have
likely dissuaded some prospective first-time buyers from entering the market. The
current high mortgage insurance added to their monthly payment is likely
causing some young adults to forgo taking out a loan.”  

While
buyers used a wide variety of resources in searching for a home, the Internet
was fairly universal, utilized by 92 percent and 87 percent consulted a real
estate agent.  Mobile or tablet
applications were used by 50 percent of purchasers while the old standbys of
yard signs and open houses were used by slightly less than half.

Buyers
most frequently learned first about the home they purchased from the Internet,
43 percent.  This was the same percentage
as last year but up from 36 percent in 2009
One third learned first from a real estate agent; 9 percent a yard sign
or open house; 6 percent from a friend, neighbor or relative; 5 percent from
home builders; 3 percent directly from the seller; and 1 percent a print or
newspaper ad.

The
typical buyer visited 10 homes and bought two weeks quicker than last year (10
weeks compared to 12 in 2013). Overall, 89 percent were satisfied with the
buying process.

Seventy-nine
percent of respondents purchased a detached single-family home, 8 percent a
townhouse or row house, 8 percent a condo and 6 percent some other kind of
housing. First-time home buyers were slightly more likely (10 percent) to
purchase a townhouse or a condo than repeat buyers (7 percent). The typical
home had three bedrooms and two bathrooms.

Recent
sellers responding to the NAR survey this year were typically 54 years old,
married and with a household income of $96,700. 
Sellers had lived in their homes for ten years – a new high for tenure in
the home and attributable in part to the housing crash.   Seventeen percent said they had wanted to sell
earlier but were stalled because their home had been worth less than their
mortgage.

Sellers
realized a median equity gain of $30,100 ($25,000 in 2013) – a 17 percent
increase (13 percent last year) over the original purchase price. Sellers who
owned a home for one year to five years typically reported higher gains than
those who owned a home for six to 10 years, underlining the price swings since
the recession.

The
median selling time dropped from five weeks on the market last year to
four.  Sellers moved a median distance of
20 miles and approximately 71 percent moved to a larger or comparably sized
home.

For
the past three years, 88 percent of sellers have sold with the assistance of an
agent and only nine percent of sales have been for-sale-by-owner, or FSBO sales,
the same as last year and 2010 and 2012. 
The record high for FSBO sales was 20 percent in 1987.

NAR’s
buyer and seller survey is conducted by mail. 
A 127-question survey was sent in July to buyers who had purchased a
home between July 2013 and June 2014.  A
total of 6,572 responses were received. 

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