The share of first-time buyers declined for the third consecutive year – to its lowest point in nearly three decades
WASHINGTON – November 6, 2015 – The share of first-time buyers declined for the third consecutive year – to its lowest point in nearly three decades, according to an annual survey released today by the National Association of Realtors® (NAR).
Overall, home sales strengthened, but the uptick was driven more by repeat buyers with dual incomes. The survey also found that nearly 90 percent of buyer-seller respondents worked with a real estate agent to buy or sell a home as for-sale-by-owner transactions dropped to their lowest share ever.
NAR's 2015 Profile of Home Buyers and Sellers evaluates the demographics, preferences, motivations, plans and experiences of recent homebuyers and sellers, and dates back to 1981. Results are representative of owner-occupants and don't 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) – the second-lowest share since the survey's inception (1981) and the lowest since 1987 (30 percent). Historically, first-time homebuyers make up nearly 40 percent of primary purchases.
"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," says Lawrence Yun, NAR chief economist. "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 downpayment; 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 offers additional clues to why fewer first-time buyers reach the market.
"First–time buyers reported that debt (all forms) delayed saving for a downpayment 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," Yun says. "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 downpayment or have decided to delay buying until their debt is at more comfortable levels."
This year's survey finds a higher share of married couples – 67 percent (up from 65 percent last year) – with a higher household income than previous years. Married repeat buyers have the highest income among all buyers ($108,600). 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.
The percent of multi-generational households (adult children, parents and/or grandparents) at 13 percent didn't change since last year. 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.
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.
Most homebuyers (80 percent, up from 79 percent last year) continue to view a home as a good financial investment, and 43 percent believe it's better than stocks. 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 with a low-down payment Federal Housing Administration (FHA)-backed mortgage – a decline from 43 percent five years ago; 11 percent financed used the Veterans Affairs (VA) loan program with no downpayment requirements.
In addition to using their own savings for their downpayment (81 percent), first-time buyers used outside resources, including a gift from a friend or relative (27 percent), selling stocks or bonds (8 percent) or tapping into a 401(k) fund (8 percent).
For repeat buyers, the proceeds from the sale of their primary residence (53 percent) was the top source for their downpayment, 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," says Yun.
The home search process
More homebuyers began their search on the Internet (42 percent) than any other source, but real estate agents remained an integral part of the process: 88 percent of buyers who searched for homes online ended up purchasing through an agent.
The two most popular resources continue to 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," says NAR President Chris Polychron. "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."
The home search resource gaining the most traction is mobile or tablet applications. Their use steadily increased from 45 percent in 2013 to 61 percent this year. However, traditional resources continue to prove popular with buyers, including yard signs (51 percent) and open houses (48 percent).
With tight inventory conditions 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. Of buyers with children under the age of 18, 89 percent bought 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 – 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).
Eighty-nine percent of sellers sold their home with an agent. Only 8 percent were by for-sale-by-owner (FSBO) sales, 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) and married (77 percent), with a household income of $104,100 ($96,700 in 2014). The seller lived in the home 9 years before selling, which is a bit less than 2014's all-time high of 10 years. This year, only 14 percent of sellers said they wanted to sell earlier but couldn't because their home was worth less than their mortgage, compared to 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 for selling a home was that it was too small (16 percent).
Two out of three sellers (66 percent) found their real estate agent through a referral from a friend, neighbor or relative, or they used their agent from a previous transaction.
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. All information is characteristic of the 12-month period ending in June 2015 with the exception of income data, which are for 2014.
The 2015 NAR Profile of Home Buyers and Sellers can be ordered online or by calling (800) 874-6500. The study costs $19.95 for NAR members and $249.95 for non–members.
© 2015 Florida Realtors® All rights reserved. Reprinted with permission.