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Are First-Time Homebuyers Making a Comeback?

by Peter Thomas Ricci

First-time homebuyers have been MIA for some time – are they poised for a comeback?

first-time-homebuyers-nar-2016-home-sales-student-debt

The National Association of Realtors reported late last week that first-time homebuyers accounted for 32 percent of existing-home sales in December, which was up from 29 percent in Dec. 2014 and tied for the highest share in 2015.

Throughout the housing recovery, first-time homebuyers have remained relatively absent on the real estate scene, and because of that, a number of outlets and analysts quickly seized on the narrative that first-time homebuyers were returning to the marketplace.

Is that what is actually happening, though? To find out, we took a deeper look at NAR’s data, and arrived at some surprising conclusions.

First, here is how first-time homebuyer marketshare has shifted since the early ’80s:

As the graph shows, first-time homebuyer market share has been falling steadily the last three years, and is at its lowest level since 1987, when first timers accounted for just 30 percent of the market. In case you’re wondering about the massive spike in activity from 2006 to 2010, we have the government’s first-time homebuyer tax credit to thank for that. In an effort to combat the housing downturn, the government offered a large tax credit to entice first-time homebuyers, but as we’ve reported, the resulting boom in sales occurred before housing truly bottomed out, so as soon as the credit expired, housing resumed its decline.

Such a graph, though, only shows the picture from 1,000 feet up. How do things look when we focus specifically on 2015?

Here is a second graph with that perspective:

As the second graph shows, it’s difficult to argue that first-time homebuyers are returning with any substantial force, especially considering that every peak in first-time buyer activity – the 32-percent marketshare in May and August – were followed by immediate declines, a trend that suggests underlying issues persist for first-time homebuyers.

Barriers to Homeownership

What are those issues? As we’ve covered before, many economic developments have conspired to keep first-time buyer market share low:

•Slow Income Growth – According to research from Zillow, not only have first-time homebuyer wages stagnated (from 2010-13, the median income for first-time buyers was $54,339.84 in 2011 dollars, a mere 2.9 percent increase from 1970-74), but additionally, home prices have continued to increase, with the median home price in 2010-13 being $140,327.58, a 60.6 percent uptick from the early ’70s. Price-to-income, a ratio Zillow uses to compare the two measurements, has therefore risen from 1.7 in 1970-74 to 2.6 now, meaning homes are currently 52.9 percent more costly for first-time buyers.

•Student Loan Demons – On top of stagnant wages, student loan debt is also a concern. According to the National Association of Realtors, 41 percent of first-time buyers reported have student debt in 2015, and among those individuals, 31 percent had debts of $50,000 or more; furthermore, 58 percent of first-time buyers reported that student loans delayed their home purchase, and 22 percent stated that debt of some kind delayed their home purchase for more than five years.

•Married with Children? – Finally, according to the U.S. Census Bureau, the median age for first marriages since 2000 has risen from 26.8 to 29.3 for men, and from 25.1 to 27.0 for women; in 1959, the ages were 22.5 for men and 20.2 for women. Such statistics may seem, on the surface, to bear no influence on housing. However, a recent NeighborWorks survey found otherwise: 43 percent of respondents plan to purchase a home when they marry or move in with a life partner.

That statistic was part of a broader question on what milestones would precipitate a home purchase, and marriage was by far the most pivotal event in respondents’ homebuying decision; by comparison, only 9 percent cited graduating college as cause to buy a home. So, if marriages are delayed, it stands to reason that first-time home purchases will be delayed, as a result.

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Comments

  • pam girard says:

    So much of what this article states is what I had surmised over the past few years. Your stats prove what I believed to be the case, Thank you for this valuable information. Also, as rentals continue to rise, home ownership for the first time buyers become a choice that is attainable if mortgage rates stay at their current numbers. Many fear that these rates will rise soon and are making the plunge into home ownership.

  • Enid Padilla says:

    Thank you for confirming what I have been saying all along! Finally some one puts it in paper! : )

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