First-Time Home Buyer Market Share Drops To All-Time Low Amid Persistent Headwinds – Forbes Advisor

A new report from the National Association of Realtors (NAR) shows that would-be buyers hoping to purchase their first home still can’t catch a break. Despite rising incomes across all buyer types, soaring home prices and high mortgage rates are outpacing those gains, turning a first-time buyer’s dream of owning a home into a mirage that fades when it seems within reach.

First-time buyers—now a shrinking market share—are up against seasoned homeowners with substantial equity and all-cash buyers, tough rivals to beat in today’s competitive home-buying arena.

First-Time Home Buyer Share Declines: Causes and Implications

The market share of first-time home buyers sunk to 24%, according to NAR’s 2024 Profile of Home Buyers and Sellers. This segment is down from last year’s 32% and marks the lowest first-time buyer market share since the report was first published in 1981.

NAR’s flagship annual survey sheds light on home-buying and selling behavior, with this latest survey tracking transactions between July 2023 and June 2024.

“First-time buyers face high home prices, high mortgage interest rates and limited inventory, making them a decade older with significantly higher incomes than previous generations of buyers,” said Jessica Lautz, NAR’s deputy chief economist and vice president of research, in a news release.

As market share fell, affordability challenges and persistent inventory constraints drove the average age of first-time home buyers to a record high of 38, up from 35 last year.

First-Time Home Buyer Characteristics

The report shows that first-time buyer incomes rose from $95,000 a year ago to a record $97,000, a hefty $26,000 increase from just two years ago.

Yet, according to NAR’s latest First-Time Home Affordability Index, a buyer needs to earn $106,464 in qualifying income to purchase a typical $358,800 starter home. Qualifying income represents a would-be buyer’s salary to be eligible for a loan.

Moreover, the First-Time Home Buyer Affordability Index fell from 68.5 to 62.2 between the first and second quarters of 2024. An index reading below 100 indicates that a median-income family is unlikely to afford a mortgage on a median-priced home with a 10% down payment.

“The U.S. housing market is split into two groups: first-time buyers struggling to enter the market and current homeowners buying with cash,” Lautz said. All-cash buyers hit a record high of 26%, according to the report.

How Can First-Time Buyers Adapt Amid Affordability Challenges?

Many experts agree that one of the biggest obstacles to homeownership is coming up with the down payment, a challenge particularly difficult for first-time buyers. This is especially true for those early in their careers who are often earning lower wages, making it harder to save for the upfront costs of buying a home.

According to NAR, the median down payment for first-time buyers was 9%, meaning a hopeful homeowner would need to pony up over $32,000 for a typical starter home. Most first-timers (69%) tapped into their savings, while 25% relied on gifts from friends or family.

Meanwhile, 17% of survey participants reported overcoming affordability challenges by purchasing a multigenerational home, with 36% of buyers citing cost savings as their primary reason.

“As home buyers encounter an unaffordable housing market, many are choosing to double up as families,” Lautz said. “Cost savings are a major factor, with young adults returning home—or never leaving—due to prohibitive rental and home prices.”

How To Buy a Multigenerational Home

As the description implies, a multigenerational home—often referred to as a multi-gen home—is a household that includes at least two adult generations (primarily adults 25 years of age and over) living together in the same residence. These arrangements can include children, parents and grandparents. According to U.S. Census data, there were 6 million multigenerational households in 2020, up from 5.1 million in 2010.

Living in a multigenerational home can offer financial advantages, particularly when several earners live in the household. These benefits include additional financial resources and extra protection from unexpected economic hardships.

If you think buying a multigenerational home with other family members could be your best path to homeownership, here are some vital steps to consider before you commit to this option.

• Confirm who is financially participating in the purchase. Discuss each participant’s financial limits and how much they intend to commit.
• Clarify everyone’s financial stake in the home. It’s important to agree on each person’s contribution, including their funding amount and ownership share. Also, discuss how monthly costs, like taxes and utilities, will be split. Consider setting up a joint checking account to simplify bill payments. Use an affordability calculator to help estimate monthly expenses.
• Define long-term objectives. Before committing to co-ownership, all parties should align on the expected duration of ownership and establish a plan for handling shares if someone wants to sell their stake or in the event of a co-owner’s death.
• Create a legally binding agreement. Include essential details in the agreement, such as the names of the official owners on the property deed, each person’s financial stake and their responsibilities for ongoing homeownership payments. Specify who will be listed on the mortgage and consider incorporating estate planning provisions. Review and formalize terms with guidance from an experienced real estate attorney.
• Establish a budget. Determine how much home you and your co-owners can afford by factoring in the purchase price and any recurring expenses, such as mortgage payments, property taxes, homeowners insurance, maintenance costs and homeowners’ association fees, if applicable.
• Understand everyone’s priorities. Everyone has different must-haves for a home, such as preferred amenities, location and school options. Before house hunting, create a list of everyone’s key priorities to help narrow the search and avoid misunderstandings.
• Review stakeholders’ financial health. Before shopping for a lender, ensure that everyone with an ownership stake is financially secure. Lenders will review credit scores and debt-to-income (DTI) ratios to confirm that all co-borrowers qualify for the loan.
• Gather documentation. As part of the loan application process, you and your family members will need to provide a variety of personal and financial documents to the lender. Gathering these documents can be challenging for even one person, so make sure everyone has the required paperwork ready to make the application process smoother.
• Shop multiple lenders. Comparing mortgage lenders could help you find better terms and interest rates. When speaking with lenders, ask about loan options, down payment minimums, lender fees and anticipated closing costs.
• Consider the downsides. Jointly owning a home with family offers financial advantages, but it can also present challenges related to privacy, shared space and potential financial or personal conflicts that could strain relationships. To avoid these issues, thoroughly discuss whether you and your co-owning family members are a good fit for living together.