First-time Homebuyers on the Decline, New Report Shows

The job market and the economy continue to improve. Mortgage interest rates remain near historic lows. But despite that, the share of first-time homebuyers fell to its lowest point in nearly three decades, according to a new report by the National Association of REALTORS®.

NAR blamed the drop on a number of factors, including younger people carrying more student debt, but the trend could be preventing a healthier housing market from reaching its full potential, economists said.

The annual consumer survey additionally found that an overwhelming majority of buyers search for homes online and then purchase their home through a real estate agent, a trend that has been growing over the past decade.

The 2014 National Association of REALTORS® Profile of Home Buyers and Sellers found that 33 percent of buyers were first-timers, down from 38 percent a year ago and the lowest share since 1987. Since 1981, the average has typically been about 40 percent.

NAR’s chief economist Lawrence Yun cited a number of obstacles young adults are facing on the road 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 stronger job growth should eventually lead to higher wages, but he added that tight credit and the mortgage application and approval process continue to be a hindrance for young buyers.

“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,” he said.

What wasn’t highlighted in the report is the significant role that escalating home prices in markets like the Bay Area plays in the decline of first-timers. But perhaps that goes without saying.

Tremendously low inventory has served to keep prices moving significantly higher in many of our markets, even in the entry-level category. My hope is that if we begin to see inventory levels loosen up and return to normal, that could help keep prices within reach for our young adults – and give them a better chance to enjoy the American Dream of homeownership.
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