A new study from the National Association of Realtors out Monday reports that the paucity of for-sale housing supply in much of the country over the past year accelerated price growth and kept many first-time buyers out of the market.
This is according to the NAR’s 2017 Profile of Home Buyers and Sellers, which also identified numerous current consumer and housing trends, including: mounting student debt balances and smaller down payments; increases in single female and trade-up buyers; the growing occurrence of buyers paying the list price or higher; and the fact that nearly all respondents use a real estate agent to buy or sell a home, which kept for-sale-by-owner transactions at an all-time low of 8% for the third straight year.
In this year’s survey, the share of sales to first-time home buyers inched backward to 34% (35% in 2016), which is the fourth lowest share since 1981. In the 36-year history of NAR’s survey, the long-term average of first-time buyer transactions is 39%.
“The dreams of many aspiring first-time buyers were unfortunately dimmed over the past year by persistent inventory shortages, which undercut their ability to become homeowners,” said Lawrence Yun, NAR chief economist. “With the lower end of the market seeing the worst of the supply crunch, house hunters faced mounting odds in finding their first home. Multiple offers were a common occurrence, investors paying in cash had the upper hand, and prices kept climbing, which yanked home ownership out of reach for countless would-be buyers.”
Added Yun, “Solid economic conditions and millennials in their prime buying years should be translating to a lot more sales to first-timers, but the unfortunate reality is that the nation’s home-ownership rate will remain suppressed until entry-level supply conditions increase enough to improve overall affordability.”
Highlighting the additional challenges imposed on consumers trying to reach the market, 41% of first-time buyers indicated they have student debt (40% in 2016). The typical debt balance also increased ($29,000 from $26,000 in 2016), and more than half owe at least $25,000. Additionally, of the 25% who said saving for a down payment was the most difficult task in the buying process, 55% said student debt delayed saving for their home purchase.
“NAR survey findings on student debt released earlier this fall revealed that an overwhelming majority of millennials with student debt believe it’s delaying their ability to buy a home, and typically for seven years,” added Yun. “Even in markets with a plethora of job opportunities and higher pay, steep rents and home prices make it extremely difficult to put savings aside for a down payment.”
Solid job prospects, higher incomes and improving credit conditions translated to continued momentum in the growing share of single female buyers. At 18% (matches highest since 2011), single women were the second most common household buyer type behind married couples (65%). Furthermore, single women purchased slightly more expensive homes than single men despite earning less. The overall share of single male buyers (7%) remained below unmarried couples (8 percent) for the second straight year.
The ongoing climb in home prices pulled the typical down payment for first-timers to 5% this year (6% in 2016), which matches the lowest since 2013. Meanwhile, higher home values likely gave more sellers the wherewithal to use the cash from their recent sale to make a bigger down payment on their new home purchase (14%; 11% in 2016). Repeat buyers’ sales proceeds from their previous purchase (55%) surpassed their own personal savings (50%) this year as a larger source of their down payment.
Personal savings ranked first for first-time buyers as the primary source of their down payment, followed by a gift from a friend or relative (25%; 24% in 2016). More than half of first-timers said it took a year or more to save for a down payment, and 25% said saving was the most difficult task in the entire buying process.
For the second straight year, the median age of first-time buyers was 32 years old. First-time buyers had a higher household income ($75,000) than a year ago ($72,000) and purchased a slightly smaller home (1,640-square-feet; 1,650-square-feet in 2016) that was more expensive ($190,000; $182,500 in 2016). Fewer first-time buyers purchased a home in an urban area (17%; 20% in 2016).
The age of repeat buyers increased to an all-time survey high this year (54 years old; 52 years old in 2016) as older households, perhaps with plans to stay in the workforce longer but with an eye towards retirement, felt more comfortable about buying. Overall, repeat buyers had roughly the same household income than last year ($97,500; $98,000 in 2016) and purchased a 2,000-square-foot home (unchanged from last year) costing $266,500 ($250,000 in 2016).
Underscoring the supply and demand imbalances prevalent in many parts of the country, 42% of buyers paid the list price or higher for their home, which is up from a year ago (40%) and a new survey high since tracking began in 2007. Buyers in the West were the most likely (51%) to pay at or above list price.
“Many of those in the market to buy a home this year had little room to negotiate,” said Yun. “Listings in the affordable price range drew immediate interest, and the winning offer often times had to waive some contingencies or come in at or above asking price to close the deal.”
The improving financial health of borrowers and a slight ease in credit standards are leading to a smoother process in obtaining a mortgage. Fewer buyers (34%) compared to a year ago (37%) indicated that the mortgage application and approval process was somewhat or much more difficult than they expected.
58% of buyers financed their purchase with a conventional mortgage, and 34% of first-time buyers took out a low-down payment Federal Housing Administration-backed mortgage, which is up from 33% last year but down from 46% five years ago.
A majority of buyers continue to choose a home in a suburb, small town or rural area (85%) as opposed to an urban one (13%; 14% in 2016). Eighty-three percent of buyers purchased a detached single-family home, which for the third straight year remains the highest share since 2004 (87 percent). Purchases of multi-family homes, including townhouses and condos, were at 11%.
This year’s survey data continues to show that the internet (95%) and real estate agents (89%) remain the top two information sources used during buyers’ home search. Overall, 87% of buyers ended up purchasing their home through a real estate agent (88% in 2016), and finding the right property to buy and help negotiating the terms of the sale were the top two things buyers wanted most from their agent. Even for those who found the home they purchased online, nearly all still closed on it with the help of an agent (88%).
The typical seller over the past year was 55 years old, had a higher household income ($103,300) than last year ($100,700) and was in the home for 10 years before selling – matching the all-time high set both in 2014 and a year ago. Prior to 2009, sellers consistently lived in their home for a median of six years before selling.
With home values steadily rising over the past several years, sellers realized a median equity gain of $47,500 ($43,100 in 2016) – a 26% increase (24% last year) over the original purchase price. Homes sold after 21 years of ownership had the largest equity gain (104%), while those who purchased six or seven years ago saw a larger return (27%) than those who purchased between eight and 15 years ago (14% to 18%).
The percent share of buyers trading up increased for the third straight year, rising to 52% from 46% in 2016. In 2014, 40% of buyers purchased a bigger home.
“The decline in first-time buyers and uptick in repeat buyers trading up to a larger home reflects the more favorable conditions for home shoppers at the upper end of the market, where listings are more plentiful and sales have been consistently higher over the past year,” said Yun.
Sellers’ use of a real estate agent this year remained at an all-time high of 89%. This in turn – for the third straight year – held for-sale-by-owner sales to their lowest share (8%) in the survey’s history.
NAR mailed a 131-question survey in July 2017 using a random sample weighted to be representative of sales on a geographic basis to 145,800 recent home buyers. Respondents had the option to fill out the survey via hard copy or online; the online survey was available in English and Spanish. A total of 7,866 responses were received from primary residence buyers. After accounting for undeliverable questionnaires, the survey had an adjusted response rate of 5.6%. The sample at the 95% confidence level has a confidence interval of plus-or-minus 1.10%. The recent home buyers had to have purchased a home between July 2016 and June 2017. All information is characteristic of the 12-month period ending in June 2017 with the exception of income data, which are for 2016.
