The market for first-time home buyers is brutal

The age of first-time home buyers: Insights from unprecedented home price increases and vacancy rates in the First-Time Home Buyers’ Market

Skyrocketing home prices and climbing interest rates pushed the share of first-time homebuyers to an all-time low, according to a new report from the National Association of Realtors. And those first-time buyers were the oldest they have ever been, as the growing lack of affordability forced people to wait longer to reach life milestones like buying a home.

The median household income for first-time buyers slipped to $71,000 during the year ended in June, down from $86,500 in the previous 12-month period. Meanwhile, repeat buyers had a median income of $96,000, down from $112,500 the previous year.

The research covered from July of 2021 to June of 2022, and included some of the most steep home price increases. The competition to buy a home was strong as inventory was at a record low due to decades of underbuilding. By April of this year, mortgage rates began to surge past the 5% mark. After the Fed started hiking interest rates, they reached a high of as much as 7 percent by late October. On Thursday, mortgage rates dipped slightly to 6.95%.

With mortgage rates double what they were a year ago, more buyers, including Black home buyers, have been pushed out of home ownership. With average rates for a 30-year, fixed-rate loan currently at 6.5%, few renters can currently afford to buy the typical home.

During the year ending in June, the overwhelming majority of buyers, 88%, were White, up from 82% the previous year. 8% of all home buyers were Hispanic, which is up from 7%. Asian and Black percentages were both dropping from a year ago.

The median income of black renters was more than three times the median income of white renters and the average monthly rent was more than nine times the average rent of white households. It will be difficult for black households to save for a down payment for a home purchase if rental costs go up even more in the next 20 years.

The Rise of the Real Estate Market: A Study of Redlining Practices in the U.S. Between 2018 and 2021, and the Rate of Homebuyers in High-Minority States

Because of the affordability crunch, homebuyers seemed less able or interested in buying in the area where they currently live. The median distance between a buyer’s current home and their newly purchased home was typically 15 miles between 2018 and 2021. The typical distance during the year ending in June 2022 was 50 miles.

The typical home was under 2,000 square feet, and had three bedrooms and two bathrooms, according to the report. This is an older home than in the past.

Ms. Elmer, who works in private aviation, had to delay her 2020 wedding because of the Pandemic. Some people have been able to progress but I am stuck at the beginning. I know we will eventually get there one day, but it’s hard to look to the future.”

The more years a person spends renting, the fewer years they have to build equity in a home and eventually pass that equity along to the next generation. A renter has little control over rental costs over the course of a year, as the market varies from year to year.

Homeownership in the United States reached its lowest level in 2015 and has steadily risen since to a rate of 65.5% of Americans owning homes in 2021. More Americans own their homes today than a decade ago.

Not all buyers have the same shot at homeownership or its wealth-generating prospects in the United States. There are reasons that redlining practices continue today. Just this week, the Department of Justice secured a $9 million settlement to resolve allegations that Park National Bank in Ohio engaged in a pattern of mortgage lending discrimination by ‘redlining’ in Columbus, Ohio. Redlining is an illegal practice in which lenders avoid providing credit services to people in specific communities because of the race or national origin of the residents there.

Housing affordability tanked in 2022 as mortgage rates doubled from the year before and home prices hit all-time highs. Buyers now need to earn more than $100,000 annually if they want to purchase a median-priced home without going beyond their budget, according to the NAR report.

The states with the highest homeownership rate for Black Americans were South Carolina at 55%, Delaware at 54%, and Mississippi at 54%. In contrast, North Dakota (15%), South Dakota (25%) and Alaska (27%) had the lowest homeownership rates.

In 2021, 23.3% of homes in high-minority areas experienced undervaluation, while 13.4% of homes in low-minority areas did. In areas with more people, the median appraisal value was lower because they had more minorities.