First-time homebuyers in the U.S. are getting older.
The median first-time homebuyer has reached an all-time high of 38 years old — three years older than in July 2023, according to the National Association of Realtors’ 2024 Profile of Home Buyers and Sellers report. This summer, NAR polled 5,390 buyers who purchased a primary residence between July 2023 and June 2024.
In the 1980s, the typical first-time buyer was in their late 20s.
“The first-time homebuyer who can enter into today’s market is older, has a higher income [and] is wealthier,” said Jessica Lautz, deputy chief economist at NAR, pointing out that higher home prices require bigger down payments.
Additionally, the share of first-time homebuyers on the market decreased over the past year from 32% to 24%, the lowest since NAR began collecting data in 1981.
Factors including the nationwide housing shortage, competition against wealthier buyers and high rent prices make it more difficult for younger adults to buy their first home, according to experts.
‘The biggest issue of housing today’
The housing shortage in the U.S. is “the biggest issue of housing today,” said Orphe Divounguy, senior economist at Zillow.
As of mid-2023, there’s a housing shortage of 4 million homes, according to the NAR. Construction of new homes has been slow in recent years, and more buyers are competing for available homes, pushing up prices.
“We do need affordable housing,” said Jonathan Scott, co-host of the HGTV series “Property Brothers.” “It’s going to affect all of us if we don’t start acting now.”
During a recent CNBC Your Money event, Scott said a sustained housing shortage could dramatically influence first-time buyers over the long run: “Give it another 20 years and literally no young person will be able to afford to purchase a home, period.”
Building activity has somewhat improved. Single-family housing starts in the U.S., a measure of new homes that began construction, grew to 1,027,000 in September, according to U.S. Census data. That is a 2.7% jump from August.
Yet “we are still in a very, very constrained market,” said Selma Hepp, chief economist at CoreLogic. “Because of fewer homes on the market, you have more pressure on home prices.”
In August, the cost of a typical starter home was $250,000, up from $240,000 a year prior, according to Redfin.
‘The winners in today’s housing market’
The housing market is dominated by repeat homebuyers and sellers, or those who’ve owned and sold homes more than once. Prior homeownership gives them access to home equity to tap, in some cases enough to buy homes outright.
About a quarter, 26%, of homebuyers paid cash for their home, an all-time high for cash buyers, NAR found.
U.S. homeowners with mortgages have a net homeowner equity of over $17.6 trillion in the second quarter of 2024, according to CoreLogic. Home equity increased in the second quarter of this year by $1.3 trillion, an 8.0% growth from a year prior.
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Baby boomers and retirees are “the winners in today’s housing market,” said Lautz. The typical repeat homebuyer is now 61 years old, and sellers are typically 63, per the NAR report.
“When we look at the average homebuyer, for older buyers, they have about $300,000 in home equity versus younger millennial buyers,” Hepp said.
‘We’re seeing renters staying renters for longer’
Other factors like high rent costs and elevated debt-to-income ratios make it hard for would-be buyers to save for a home, experts say.
Rent prices increased faster than tenants’ wages during the pandemic. In 2022, rent growth peaked at 16% at an annual basis, Divounguy said. That same year, wage growth peaked at 9.3%, according to data from Indeed.
The price jump meant the typical renter spent about 31% of their income on rent. About half of renter households were “cost burdened,” meaning they spent more than 30% of their income on housing.
“We’re seeing renters staying renters for longer because affordability has been so squeezed,” he said.
High rent prices not only affect your ability to save money to buy a home, it can affect your ability to pay down any existing debt, Lautz said.
For instance, if a potential buyer has outstanding student loans, their monthly rent cost could make it harder for them to make larger payments towards their debt balance, she said.
That in turn influences your debt-to-income ratio, or how much money you’re paying every month towards debt. That is an important factor when qualifying for a mortgage. Essentially, lenders consider the DTI to see if a borrower can sustain a mortgage payment on top of existing loan obligations.
“All of these things snowball, especially in an inflationary environment,” Lautz said.