First-time Buyers Continue to Retreat from U.S. Housing Market

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According to an annual survey by the National Association of Realtors (NAR), the share of first-time buyers declined for the third consecutive year and remained at its lowest point in nearly three decades as the overall strengthening pace of home sales over the past year was driven more by repeat buyers with dual incomes. The survey additionally found that nearly 90 percent of all respondents worked with a real estate agent to buy or sell a home; which pushed for-sale-by-owner transactions to their lowest share ever.
 
The 2015 National Association of Realtors Profile of Home Buyers and Sellers continues a long-running series of large national NAR surveys evaluating the demographics, preferences, motivations, plans and experiences of recent home buyers and sellers; the series dates back to 1981. Results are representative of owner-occupants and do not include investors or vacation homes.
 
In this year's survey, the share of first-time buyers declined to 32 percent (33 percent a year ago), which is the second-lowest share since the survey's inception (1981) and the lowest since 1987 (30 percent). Historically, the long-term average shows that nearly 40 percent of primary purchases are from first-time home buyers.
 
Lawrence Yun, NAR chief economist, says the housing recovery's missing link continues to be the absence of first-time buyers. "There are several reasons why there should be more first-time buyers reaching the market, including persistently low mortgage rates, healthy job prospects for those college-educated, and the fact that renting is becoming more unaffordable in many areas," he said. "Unfortunately, there are just as many high hurdles slowing first-time buyers down. Increasing rents and home prices are impeding their ability to save for a down payment, there's scarce inventory for new and existing-homes in their price range, and it's still too difficult for some to get a mortgage."
 
Yun says this year's survey perhaps offers additional clues to why fewer first-time buyers are reaching the market. "First-time buyers reported that debt (all forms) delayed saving for a down payment for a median of three years, and among the 25 percent who said saving was the most difficult task, a majority (58 percent) said student loans delayed saving," he said. "With a median amount of student loan debt for all buyers at $25,000, it's likely some younger households with even higher levels of debt can't save for an adequate down payment or have decided to delay buying until their debt is at more comfortable levels."
 
Characteristics of Buyers
 
With strong price growth in many markets and fewer first-time buyers, the results in this year's survey reveal a market with a higher share of married couples 67 percent (up from 65 percent last year) who have higher household income than previous years. Married repeat buyers have the highest income among all buyers ($108,600), while the share of single female buyers decreased from 16 percent to 15 percent and male buyers remained flat at 9 percent.
 
"Similar to some of the obstacles facing first-time buyers, tighter credit conditions and having less purchasing power than households with dual incomes likely led to the share of single-female buyers declining to its lowest since 2001 (also 15 percent)," adds Yun.
Unchanged from a year ago, 13 percent of survey respondents were multi-generational households, including adult children, parents and/or grandparents. Eighteen percent of buyers identified as military veterans, 8 percent as an unmarried couple and 3 percent as active-duty service members.
 
The median age of first-time buyers was 31, unchanged for the last three years, and the median income was $69,400 ($68,300 in 2014). The typical first-time buyer purchased a 1,620-square-foot home (1,570 in 2014) costing $170,000, while the typical repeat buyer was 53 years old and earned $98,700 ($95,000 in 2014). Repeat buyers purchased a median 2,020-square-foot home costing $246,400.
 
When asked about the primary reason for purchasing, more first-time buyers in this year's survey (64 percent) cited a desire to own their own home as the primary reason compared to a year ago (53 percent). For repeat buyers, desire to own a home of their own and wanting to own a larger home were both the top reason given (each at 13 percent). Nearly half of all buyers (46 percent) said the timing was just right and they were ready to purchase a home.
 
According to the survey, buyers continue to view buying a home as a good financial investment. Up from last year (79 percent), 80 percent of recent buyers said it was a good investment, and 43 percent believe it's better than stocks. Looking ahead, first-time buyers plan to stay in their home for 10 years and repeat buyers plan to hold their property for 15 years.
 
Financing the Purchase
 
An overwhelming majority of recent buyers (86 percent versus 88 percent in 2014) still financed their purchase, despite above-normal activity from all-cash buyers likely pushing the percent share down. Younger buyers were more likely to finance, and the median down payment ranged from 6 percent for first-time buyers to 14 percent for repeat buyers. Almost half (45 percent) of first-time buyers in this year's survey said the mortgage application and approval process was much more or somewhat more difficult than expected.
 
Ninety-one percent of all buyers chose a fixed-rate mortgage, with 23 percent financing their purchase with a low-down payment Federal Housing Administration-backed mortgage, down from 43 percent five years ago. Eleven percent financed using the Veterans Affairs loan program with no down payment requirements.
 
In addition to using their own savings for their down payment (81 percent), first-time buyers used a variety of outside resources, including a gift from a friend or relative (27 percent), and selling stocks or bonds and tapping into a 401(k) fund (both at 8 percent).
 
For repeat buyers, the proceeds from the sale of their primary residence (53 percent) was the top source for their down payment, up from 47 percent last year and 40 percent in 2012.
 
"With first-time buyers stuck on the sidelines, the majority of sales activity in most parts of the country is coming from pent-up sellers taking advantage of rising home values in their neighborhoods and using their equity to trade up or move down," added Yun.
 
Searching for and Buying a Home
 
While more home buyers used the Internet as the first step of their search than any other option (42 percent), real estate agents remain an integral part of the home search process. Eighty-eight percent of buyers who searched for homes online ended up purchasing through an agent.
 
NAR President Chris Polychron, says the two most popular resources used during the home search process continue to primarily be online websites (89 percent) and real estate agents (87 percent). "Although buyers between the ages of 18-24 were the most likely to use an agent (90 percent), over 85 percent of buyers in each of the other age categories also used an agent during their home search," he said. "With tight inventory conditions leading to stiff competition in several parts of the country and what's found online sometimes not entirely accurate, buyers are turning to Realtors for expert advice and assistance in navigating today's fast-moving housing market."
 
In recent years, the home search resource that's gaining the most popularity is mobile or tablet applications, steadily increasing from 45 percent in 2013 to 61 percent in this year's survey. Other noteworthy results included yard signs (51 percent) and open houses (48 percent).
 
With tight inventory conditions prevalent in many markets, buyers moved faster than in previous years to find the house they purchased, typically taking 10 weeks (for the second consecutive year). From 2009 to 2013, the typical home search process took 12 weeks.
 
A detached single-family home continues to be the most common type of home bought (83 percent), while purchases of townhouses or row houses remained unchanged from a year ago at 7 percent. Eighty-nine percent of buyers with children under the age of 18 purchased a detached single-family home compared to 80 percent of buyers with no children in their home. Overall, the typical home purchased during the survey period was built in 1991 and had three bedrooms and two bathrooms.
 
Slightly more buyers in this year's survey purchased a home in a suburb or subdivision (52 percent) compared to a year ago (50 percent). The remaining bought in a small town (20 percent), urban area (14 percent), rural area (13 percent) or resort/recreation area (2 percent). Recent buyers also moved further from their previous residence this past year at a median distance of 14 miles (12 miles in 2014).
 
Similar to previous years, the biggest factors influencing neighborhood choice were quality of the neighborhood (59 percent), convenience to jobs (44 percent) and overall affordability of homes (38 percent). Unmarried couples were the most likely to cite convenience to entertainment and leisure activities (26 percent), and single women were the most likely to cite convenience to friends and family as an influencing factor (43 percent).
 
Characteristics of Sellers
 
Eighty-nine percent of sellers sold their home with an agent. Only 8 percent were by for-sale-by-owner sales, which is down from 9 percent the last three years and the lowest share ever recorded since the survey's 1981 inception.
 
"Although the Internet and digital technology have created several channels for sellers to market their listings to a wider cast of potential buyers, the preference to use a Realtor to sell a home has never been stronger," says Polychron.
 
Overall, the typical seller over the past year was 54 years old (unchanged from 2014; up from 49 in 2010), was married (77 percent), had a household income of $104,100 ($96,700 in 2014), and was in the home for 9 years before selling - a year earlier than 2014's all-time high for tenure in home (10 years). Fewer sellers this past year (14 percent) wanted to sell earlier but were stalled because their home had been worth less than their mortgage (17 percent a year ago).
 
Sellers realized a median equity gain of $40,000 ($30,100 in 2014) - a 23 percent increase (17 percent last year) over the original purchase price. Sellers who owned their home for one to seven years all reported roughly selling their homes for $30,000 to $35,000 more than they purchased it. Underlining the price swings during the downturn, equity gains fell to $3,000 for owners who bought between eight and 10 years ago. Homes sold after 21 years reported a price gain of $138,000.
 
The median time on the market for recently sold homes remained at four weeks for the second year in a row, again highlighting the persistently low inventory in several markets. Sellers moved a median distance of 20 miles (70 percent stayed in the same state) and the top reason given for selling their home was it being too small (16 percent).
 
A combined 66 percent of responding sellers found a real estate agent through a referral by a friend, neighbor or relative, or used their agent from a previous transaction. Furthermore, the responses reveal client referrals and repeat business remain the predominant source of business for real estate agents, with most sellers (84 percent) indicating they would definitely (67 percent) or probably (17 percent) recommend their agent for future services.
 
NAR mailed a 128-question survey in July 2015 using a random sample weighted to be representative of sales on a geographic basis. A total of 6,406 responses were received from primary residence buyers. After accounting for undeliverable questionnaires, the survey had an adjusted response rate of 6.7 percent. The recent home buyers had to have purchased a home between July of 2014 and June of 2015. All information is characteristic of the 12-month period ending in June 2015 with the exception of income data, which are for 2014.