More first-time homebuyers returned to the market last year, but they had to come with bigger wads of cash.
For the first time, from July 2022 to June 2023, the National Association of Realtors (NAR) annual report, which profiles home buyers and sellers using data from 6,817 survey respondents, found that of home buyers accounted for 32% of all buyers. Although it is still below the 20-year average of 36.6%, it is up from 26% last year, which was the lowest in the report's history.
The rise in entry-level buyers doesn't mean homeownership is back on the table for everyone. One of the researchers said first-time buyers are largely wealthy and have been able to avoid the persistent affordability challenges plaguing the market.
“Because of rising interest rates, the buyers competing in the market were higher-income buyers who were able to compete,” Dr. Jessica Lautz, NAR's deputy chief economist, told Yahoo Finance.
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Limited inventory and associated high prices will lock out middle-income buyers in 2023.
Median income for U.S. homebuyers rose 21.6% to $107,000 this year from $88,000, according to NAR's 2023 report. The median household income for repeat buyers was $111,700, an increase of 16.4% from the previous report. It also reported that the median income for first-time buyers was $95,900, up 35% from last year's $71,000.
Both were well above the 2022 national median income of $74,580.
“Although prices have calmed recently, they are still very high compared to pre-2020,” Tim Shaw, director of policy at the Aspen Institute, wrote in Yahoo Finance. “In some ways, homebuyer incomes are catching up.”
For example, according to the S&P CoreLogic Case-Shiller National Home Price Index, home prices hit a record high in June 2022, then fell as mortgage rates rose. This year, that decline has been reversed, with the index hitting a new high in July and another all-time high in August.
“And of course, higher mortgage rates change the calculation of price and affordability significantly,” Shaw added.
During NAR's reporting period, from June 2022 to June 2023, the 30-year mortgage rate rose from 5.09% to 6.79%, and at one point exceeded 7% in November 2022. Interest rates have since risen further, reaching over 7%. According to Freddie Mac, this is the 13th consecutive week.
read more: Mortgage interest rates are at their highest level in 20 years: Is 2023 a good time to buy a home?
One way to mitigate rising mortgage rates is to put more money down for your purchase. And that's exactly what buyers are doing.
The typical down payment for first-time buyers is 8% of the purchase price, the highest percentage since 1997, when it was 9%. According to NAR's research, the average down payment for repeat buyers was 19%, the highest share since 2005, when it was 21%.
Previous measurements of down payments show that the median U.S. down payment increased 11.3% year-over-year to $30,434 in the third quarter, the highest total since Realtor.com began tracking the data in 2013. I did.
To obtain that cash, entry-level buyers have increased their reliance on financial assets this year. According to NAR's research, 24% of buyers are selling stocks, bonds, or cryptocurrencies or tapping into 401(k)s, pensions, or IRAs, up from 20% last year.
Even though it's the number one reason people jump into the market, for people with moderate incomes, the chances of achieving the American dream of owning a home seem slim.
The main reasons why first-time buyers wanted a home remained consistent in 2023 compared to previous years. According to a NAR study, 60% of new buyers in the U.S. say they are motivated by a desire to own their own home.
“This is the most important reason to buy,” Lautz said. “It's just about owning it. I think it really comes down to the American dream of homeownership.”
A dream that seems to be fading away for many.
A survey of 1,000 renters by digital real estate agency Home Bay showed that nearly three in four renters believe they cannot afford to buy a home. And two-thirds of renters say today's home prices make them feel pessimistic about the housing market.
Fannie Mae's most recent monthly survey of housing sentiment shows that the outlook is still weak, with 85% of respondents in the October survey saying it's a bad time to buy a home. I answered.
“We do hear voices of despair and frustration about not being able to afford a home,” Shaw said. “Part of the affordability issue is the current interest rate environment, so it's hard to know whether this trend will get better or worse.”
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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