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Worsening affordability and increasing mortgage rates have taken their toll on first-time buyers, with their share of sales activity plunging to the lowest level since 1981 — the year the National Association of Realtors started publishing its annual Profile of Home Buyers and Sellers.
First-time buyers comprised 26 percent of home sales in 2022, down 8 percent from last year and falling 24 percent from the all-time high in 2010. The typical age for first-time buyers climbed three years to 36 years old, signaling the difficulty older Gen-Zers and younger millennials face while trying to break into the market.
“It’s not surprising that the share of first-time buyers shrank to the lowest level ever recorded given the housing market’s combination of historically low inventory, persistently high home prices and rapidly escalating interest rates,” NAR VP of Demographics and Behavioral Insight Jessica Lautz said of the survey results from 153,045 recent home buyers.
“Those who have housing equity hold the cards and they’ve fared very well in the current real estate market,” she added. “First-time buyers are older as a result of saving for down payments for longer periods of time or relying on a generational transfer of wealth to propel them into homeownership.”
Lautz said first-time buyers are making a growing number of sacrifices to become homeowners, including longer home search timelines (8 weeks vs 10 weeks), paying above asking price (28 percent), and moving to small and rural communities to find more affordable homes.
The median distance between the home that recent buyers purchased and the home from which they moved was 50 miles – a record high and 233 percent jump from the previous median of 15 miles.
As a result, the share of homes purchased in small towns (29 percent) and rural areas (19 percent) reached all-time highs while the share of homes purchased in suburban (39 percent) and urban (10 percent) areas declined annually.
“Family support systems still prevailed as a motivating factor when moving and in neighborhood choice,” Lautz said. “For others, housing affordability was a driving factor to seek homes in areas farther away. For many, remote work decisions were formalized in the last year, providing clarity for employees to permanently move to more distant areas.”
On a demographic level, Lautz said minorities had a more difficult time navigating quickly rising home prices, booming mortgage rates, inflation and other macroeconomic factors.
In 2022, 88 percent of first-time buyers were white, eight percent were Hispanic, three percent were Black and two percent were Asian. The shares of white and Hispanic buyers increased six percent and one percent from 2021, respectively, while the shares of Black and Asian buyers both declined by more than half.
“Housing affordability and limited inventory impacted the buying power of all buyers, however, the greatest impact was felt by Black and Asian Americans, as both groups saw a shrinking share of home buyers,” she explained. “Conversely, White and Hispanic Americans experienced gains in buyer shares.”
She added, “Population growth among Hispanic Americans likely drove the increase, while many white Americans are repeat buyers with housing equity that allows them to make easier trades in today’s market.”
Lautz said the market will continue to be tight, as evidenced by the increase in the average age of repeat buyers (56 years to 59 years) and homeownership tenure (10 years to 18 years).
NAR President Leslie Rouda Smith said the survey results prove there’s still plenty of opportunity for Realtors to step up and help consumers navigate an unpredictable market, as more than three-fourths of buyers (86 percent) and sellers (87 percent) chose to work with an agent this year.
“During challenging and changing market conditions, one thing that’s calming and constant is the assurance that comes from a Realtor being in your corner through every step of the home transaction,” Rouda Smith said in a statement on Thursday. “Consumers can rely on Realtors’ unmatched work ethic, trusted guidance and objectivity to help manage the complexities associated with the home buying and selling process.”