NAR: Young Buyers Still Fenced Out of Ownership
Young adults face delays in homeownership due to high prices and interest rates, and low inventory, with first-time buyer rates at record lows.
CHICAGO — Today's young adults continue to face delays in homeownership compared to past generations at the same age. Not only is the homeownership rate lower for those under 35 today compared to past generations, but the first-time buyer share is lower, and the age of first-time buyers is older than seen historically. Let's break down these data points.
When looking at the U.S. population by age group, one can visually see that Millennials are the largest generation of Americans, which should translate into the largest generation of home buyers. Millennials (ages 26 to 44 in 2023) alone represent nearly 86 million Americans. This compares to 60.7 million Gen Xers and 64.1 million baby boomers. Represented on the first red line is the age of 38, which is the median age of today's first-time home buyers (the second red line is the age of 61, which is the median age of repeat buyers).
The age of first-time buyers today is the oldest seen since NAR first started collecting data on the age of buyers in 1981. Historically, a first-time buyer has been between the ages of 28 and 33. This represents a decade of lost housing wealth gains for homeowners. It also could mean one less move for a homeowner as they are purchasing at a later age. Thus, a home buyer could skip their starter home and move straight into a home that could fit their needs for the coming future.
Simultaneous to the jump in ages, the share of first-time buyers continues to lag at historic lows. The annual share of first-time buyers is currently at 24%, while the historical average was at 40% of all primary residence buyers dating to 1981. Certainly, low housing inventory, which has slowly increased, is a factor holding back buyers. In the last year, mortgage interest rates also hit a two-decade high, which further eroded housing affordability. In 90% of metro areas, home prices are rising.
Even among successful first-time buyers, a number have debts holding them back from saving for a down payment. Among those who said saving for a down payment was difficult, the most cited hurdles were high rent (49%), student loans (40%), credit card debt (36%), and car loans (33%). It is important to note that many of these expenses were being tackled during a high inflation environment, so it is unsurprising that 63% of first-time buyers cite the need to make financial sacrifices to purchase a home successfully.
Nearly one-third of first-time buyers this year had student loan debt. This is worth highlighting, as student loan debt payments for federal student loans resumed in October 2023, exacerbating household expenses for many young adults. A smaller share of first-time buyers cites child care costs as a hurdle, at 11%. However, overall, the cost of child care has increased and, in 2023, can range from $20,000-$28,000 annually per child, depending on the child's age and type of care setting.
So, with that picture, what is the homeownership rate for those under 35 (the U.S. Census provides a consistent reading of the homeownership rate by age, though this does not match directly to generations)? When looking at the Census homeownership rate data, there have been positive reports that the rate improved for those under 35. This is true. From 2021 to 2022, the homeownership rate did improve; however, in 2023, there was a decline. If one compares the homeownership rate from 1982 to today and then separates the data by generation, it does not tell as positive of a story. For baby boomers and Gen Xers, the average homeownership rate for those under 35 was 39.7%. Unfortunately, neither Millennials nor Gen Zers have yet to reach that number.
It is essential to note that this snapshot does not tell the whole story. The young adult generation is diverse. The following blog will look at who purchases homes and the increased share of young adults purchasing homes with all-cash purchases and large down payments. Who are these high-income, wealthy young home buyers? Keep watching this space for the upcoming analysis.
© 2024 National Association of Realtors® (NAR)