First-time buyers stifled by low supply, affordability

WASHINGTON — Despite solid interest in buying a home — sparked by steady job gains, record-low mortgage rates and higher rents — the severe drought in 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 National Association of Realtors’ 2017 Profile of Home Buyers and Sellers. The survey 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 and the growing occurrence of buyers paying the list price or higher. In addition, nearly all respondents said they used a real estate agent to buy or sell a home, which kept for-sale-by-owner transactions at an all-time low of 8 percent for the third straight year.

In this year’s survey, the share of sales to first-time home buyers inched backward to 34 percent (35 percent in 2016), which is the fourth lowest share since 1981. In the 36-year history of the NAR’s survey, the long-term average of first-time buyer transactions is 39 percent.

“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, chief economist for the NAR.

“With the lower end of the market seeing the worst of the supply crunch, house hunters faced mounting odds in finding their first home,” he said. “Multiple offers were a common occurrence, investors paying in cash had the upper hand, and prices kept climbing, which yanked homeownership out of reach for countless would-be buyers.”

Yun believes this state of affairs continue for the next few months.

“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 homeownership rate will remain suppressed until entry-level supply conditions increase enough to improve overall affordability,” he said.

Other key findings and notable trends of buyers and sellers in this year’s 144-page survey include the following:

• Student-debt balances continue to grow.

Highlighting the additional challenges imposed on consumers trying to reach the market, 41 percent of first-time buyers indicated that they have student debt (up from 40 percent in 2016).

The typical debt balance also increased (up to $29,000 from $26,000 in 2016), and more than half of those surveyed said they owe at least $25,000. Additionally, of the 25 percent who said saving for a down payment was the most difficult task in the buying process, 55 percent 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,” Yun said. “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.”

• Single females make up a larger share of sales.

Solid job prospects, higher incomes and improving credit conditions translated to continued momentum in the growing share of single female buyers. At 18 percent (which matches the highest since 2011), single women were the second most common household buyer type behind married couples (65 percent).

Furthermore, single women purchased slightly more expensive homes than single men, despite earning less. The overall share of single male buyers (7 percent) remained below unmarried couples (8 percent) for the second straight year.

• Down-payment amounts decrease for first-timers but rise for repeat buyers.

The ongoing climb in home prices pulled the typical down payment for firsttimers to 5 percent this year (down from 6 percent 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 newhome purchase (14 percent, compared to 11 percent in 2016). Repeat buyers’ sales proceeds from their previous purchase (55 percent) surpassed their own personal savings (50 percent) 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 (up to 25 percent from 24 percent in 2016). More than half of first-time buyers said it took a year or more to save for a down payment, and 25 percent said saving was the most difficult task in the entire buying process.

• The age of first-timers stays flat but climbs to a new survey high for repeat buyers. will

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 slightly smaller homes (1,640 square feet compared to 1,650 square feet in 2016) that were more expensive ($190,000 in 2017 versus $182,500 in 2016). Fewer first-time buyers purchased a home in an urban area (17 percent compared to 20 percent in 2016).

The age of repeat buyers increased to an all-time survey high this year (up to 54 years old from 52 years old in 2016) as older households, perhaps with plans to stay in the workforce longer but with an eye toward retirement, felt more comfortable about buying.

Overall, repeat buyers had roughly the same household income as last year at $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).

• Supply scarcity leads to an increase in buyers paying the list price or higher.

Underscoring the supply and demand imbalances that are prevalent in many parts of the country, 42 percent of buyers paid the list price or higher for their homes, which is up from a year ago (40 percent); this is a new survey high since tracking began in 2007. Buyers in the West were the most likely (51 percent) to pay at or above list price.

“Many of those in the market to buy a home this year had little room to negotiate,” Yun said. “Listings in the affordable price range drew immediate interest, and the winning offer oftentimes had to waive some contingencies or come in at or above asking price to close the deal.”

• Buyers report less difficulty in obtaining a mortgage.

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 percent) compared to a year ago (37 percent) indicated that the mortgage application and approval process was somewhat or much more difficult than they expected.

Fifty-eight percent of buyers financed their purchase with a conventional mortgage, and 34 percent of first-time buyers took out a low-down-payment Federal Housing Administration-backed mortgage, which is up from 33 percent last year but down from 46 percent five years ago.

• Nearly all buyers selected a singlefamily home in a suburban location.

A majority of buyers continue to choose a home in a suburb, small town or rural area (85 percent) as opposed to an urban one ( down to 13 percent from 14 percent 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 multifamily homes, including townhouses and condos, were at 11 percent.

• Most buyers search for homes online and use a real estate agent.

This year’s survey data continues to show that the internet (95 percent) and real estate agents (89 percent) remain the top two information sources used during buyers’ home searches.

Overall, 87 percent of buyers ended up purchasing their home through a real estate agent (compared to 88 percent 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 percent).

“It’s no surprise a majority of first-time buyers indicated that the top benefits received from their agent were help understanding the buying process (83 percent), pointing out unnoticed property

features or faults (60 percent) and negotiating better sales terms (51 percent),” said NAR president William E. Brown, a Realtor from Alamo, California.

“Realtors over the past year have helped buyers — and especially first-timers — navigate extremely competitive market conditions where the need to be prepared and act quickly has been paramount to the success of purchasing a home,” Brown said.

• Homeowner tenure is at an all-time high; the equity and share of repeat buyers climb.

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 homes 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 percent increase (24 percent last year) over the original purchase price.

Homes sold after 21 years of ownership had the largest equity gain (104 percent), while those who purchased homes six or seven years ago saw a larger return (27 percent) than those who purchased between eight and 15 years ago (14 percent to 18 percent).

The percent share of buyers trading up increased for the third straight year, rising to 52 percent from 46 percent in 2016. In 2014, 40 percent of buyers purchased a bigger home.

“The decline in first-time buyers and the uptick in repeat buyers trading up to a larger home reflect 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,” Yun said.

• Sellers’ use of an agent remains at an all-time high; for-sale-by-owner transactions are at a record low.

Sellers’ use of a real estate agent this year remained at an all-time high of 89 percent. This in turn, for the third straight year, held for-sale-by-owner (FSBO) sales to their lowest share (8 percent) in the survey’s history.

An overwhelming majority of sellers were satisfied with the selling process (88 percent), with most also indicating that they would definitely or probably use their agent again or recommend him or her to others (85 percent).

“Homeowners understand the value, and seek the expertise and guidance, Realtors bring to the table when it’s time to sell their home,” Brown said. “Despite incredibly favorable market conditions for sellers — where finding interested buyers was not a problem — nearly all turned to a Realtor to help assist them through the intricacies of listing their home on the market, accepting offers, negotiating the sales price and closing the deal.”

ABOUT THE SURVEY

The 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 homebuyers. Respondents had the option of filling 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 percent. The sample at the 95 percent confidence level has a confidence interval of plus-or-minus 1.10 percent.

The recent homebuyers 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.