The share of first-time buyers fell to its lowest point in nearly three decades and is preventing a healthier housing market from reaching its full potential, according to an annual survey released Monday by the National Association of Realtors.
The survey additionally found that an overwhelming majority of buyers search for homes online and then purchase their home through a real estate agent.
The 2014 National Association of Realtors Profile of Home Buyers and Sellers continues a long-running series of large national NAR surveys evaluating the demographics, preferences, motivations, plans and experiences of recent home buyers and sellers; the series dates back to 1981. Results are representative of owner-occupants and do not include investors or vacation homes.
The long-term average in this survey, dating back to 1981, shows that four out of 10 purchases are from first-time home buyers. In this year’s survey, the share of first-time buyers dropped 5%age points from a year ago to 33%, representing the lowest share since 1987 (30%).
Lawrence Yun, NAR chief economist, says there are many obstacles young adults are enduring on their path to 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,” 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 said that he sees some problems being alleviated going forward.
“Stronger job growth should eventually support higher wages, but nearly half (47%) of first-time buyers in this year’s survey (43% 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 household composition of buyers responding to the survey was mostly unchanged from a year ago. Sixty-five% of buyers were married couples, 16% single women, 9% single men and 8% unmarried couples.
In 2009, 60% of buyers were married, 21% were single women, 10% single men and 8% unmarried couples. Thirteen% of survey respondents were multi-generational households, including adult children, parents and/or grandparents.
The median age of first-time buyers was 31, unchanged from the last two years, and the median income was $68,300 ($67,400 in 2013). The typical first-time buyer purchased a 1,570 square-foot home costing $169,000, while the typical repeat buyer was 53 years old and earned $95,000. Repeat buyers purchased a median 2,030-square foot home costing $240,000.
When asked about the primary reason for purchasing, 53% of first-time buyers cited a desire to own a home of their own. For repeat buyers, 12% had a job-related move, 11% wanted a home in a better area, and another 10% said they wanted a larger home. Responses for other reasons were in the single digits.
According to the survey, 79% of recent buyers said their home is a good investment, and 40% believe it’s better than stocks.
Click below to read details on home buyers, sellers and financing