First-time homebuyers are getting older as prices rise

The age of first-time homebuyers climbed last year while their share of the market fell to an all-time low, according to data released Thursday by the National Association of Realtors (NAR).

NAR’s 2022 Profile of Home Buyers and Sellers showed that first-time buyers, whose typical age rose to 36, made up 26 percent of the market from July 2021 to June 2022, down from 34 percent a year earlier.

The last finding was not surprising, but it was stark as young buyers face a set of affordability challenges and severely limited availability, Jessica Lautz, NAR vice president of demographics and behavioral insights, told The Hill.

“We also know that first time homebuyers have to save for a down payment and closing costs in an environment of high inflation with rising rents while still having student loan debt and being able to pay that down as well as credit card costs or childcare expenses,” Lautz said.

“All of that does add up. And so, saving for a down payment ends up on the back burner because you have to pay the bills that are due first before you can save,” Lautz added.

Twenty-six percent of first-time buyers said saving for a down payment was the hardest part of the process. And most said they made sacrifices to afford a home, including cutting costs by forgoing entertainment expenses.

Most first-time buyers were motivated by a desire for homeownership, with around three-quarters saying they wanted to make the transition from renting.

While prices rose, incomes among first-time buyers fell, the NAR reported. First-time buyers’ median household incomes were down by more than $15,000 from $86,500 a year earlier.

Meanwhile, the median age of homebuyers is on the rise, moving up to 53 from 45 last year. Adults between the ages of 55 and 74 accounted for the largest share of homebuyers in the housing market in 2022.

NAR’s data collection period ended as the Federal Reserve began its aggressive effort to curb inflation, which has pushed mortgage rates near 20-year highs.

Effective mortgage rates have jumped to 7.08 percent from 4.16 percent in March, when the Fed first began its rate hikes. They have more than doubled from their pandemic low point of 2.65 percent.

Experts expect rates to rise further following the central bank’s latest interest rate increase on Wednesday. And as rates go up, housing affordability challenges will only get worse for first-time buyers, especially if overall inventory does not pick up. 

“The concern is that if we do not have more housing inventory that comes into the marketplace that is affordable, it’s not going to offset these rates that are continuing to crunch affordability,” Lautz said.

This affordability crunch also hit Black homebuyers particularly hard in 2022, with Black homebuyers making up just 3 percent of the market.

Lautz said a major reason for the disparity in home ownership involves how wealth is accrued, explaining that Black adults put a disproportionate amount of their income into rents.

“And so, when we’re seeing these rental costs rise at the pace that they are, it’s quite impossible for black homebuyers to be able to enter into the marketplace,” she said. “And that just means lost wealth gains over time both for Black Americans and also for first time homebuyers overall.” 

The new report also showed that 88 percent of buyers were white, 8 percent were Hispanic/Latino and 2 percent were Asian/Pacific Islanders. Three percent identified as “other.” 

Both Black and Asian/Pacific Islander groups experienced a decline in homebuying. 

The NAR surveyed a nationally representative sample of homebuyers who purchased a home in the 12-month period from July 2021 to June 2022.