Housing shortage and student debt hitting first time buyers in the US

Despite solid interest in buying a home sparked by steady job gains, record low mortgage rates and higher rents the severe shortage of housing supply in much of the US is preventing first time buyers getting on the property ladder.

Accelerated price growth and mounting student debt have also contributed to a fall in sales to first time buyers, according to the latest home buyer report from the National Association of Realtors (NAR).

In this year’s survey the share of sales to first time buyers edged downward by 1% to 34%, 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 home owners,’ 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 homeownership out of reach for countless would-be buyers,’ he explained.

‘Solid economic conditions and millennials in their prime buying years should be translating to a lot more sales to first timer buyers 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 added.

The survey highlights the challenges for first time buyers. Some 41% indicated they have student debt, up from 40% in 2016. The typical debt balance also increased to $29,000 from $26,000 and over 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.

Indeed, findings from a NAR survey earlier this year on student debt found that an overwhelming majority of millennials with student debt believe it’s delaying their ability to buy a home, and typically for seven years,.

‘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,’ said Yun.

Solid job prospects, higher incomes and improving credit conditions translated to continued momentum in the growing share of single female buyers to 18%, which matches the highest since 2011.

Single women were the second most common household buyer type behind married couples at 65% and single women purchased slightly more expensive homes than single men despite earning less. The overall share of single male buyers at 7% remained below unmarried couples at 8% for the second year in a row.

The research also shows that down payment amounts decreased for first timers but have risen for repeat buyers. The ongoing climb in home prices pulled the typical down payment for first time buyers down 1% to 5% this year, 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 at 14%, up from 11% in 2016.

For the second year in a row the median age of first time buyers was 32 years while the age of repeat buyers increased to an all-time survey high this year of 54 years old.

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

‘Many of those in the market to buy a home this year had little room to negotiate. 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,’ Yun pointed out.

A majority of buyers, some 85%, continue to choose a home in a suburb, small town or rural area while 13% do so in an urban location with 83% buying a detached single family home with the survey also showing that most buyers search for homes online and use a real estate agent.