Real Estate News

First-time buyers more active, face inventory, cost issues

Published: 12 Sep 2017

One of the driving forces in the housing sector over the past few years has been interest among first-time buyers because they represent such a large percentage of the overall market. With this fact in mind, it should come as no surprise that their buying power only continues to grow as the economy improves, and in the second quarter of 2017, their activity reached levels not seen in nearly two decades.

First-time buyers purchased about 570,000 homes nationwide from April to June, the latest period for which data is available, according to new industry data from Genworth Financial. That's up from just 426,000 in the first three months of the year and set the highest mark observed in a single quarter since the same period in 1999, when first-timers purchased some 599,000 homes.

Furthermore, it's believed a number of issues still hold back more people who would otherwise be first-time buyers from actually entering the market, the report said. However, those barriers might decline as the economy continues to improve.

"The rapid growth in the first-time homebuyer market that began in 2015 continued into the second quarter," said Tian Liu, chief economist for Genworth Mortgage Insurance. "As the housing market matures, first-time homebuyers are becoming an even more important source of growth. Whether one looks at the 3 million missing first-time homebuyers since 2007 or the historically low homeownership rate among young households, the potential growth opportunity remains large and will likely take years to play out. The current housing cycle will be defined by first-time homebuyers."

First-time buyers scooped up plenty of homes in the second quarter.First-time buyers scooped up plenty of homes in the second quarter.

A potential hurdle
One of the biggest issues young people - who make up the vast majority of first-time buyers - are likely to face is that homes cost more than they can reasonably afford. Part of that problem certainly stems from the intense competition seen in the market over the past year-plus, but another obstacle here may be a general trend in the housing market, according to Zillow. The average new home sold today measures about 2,500 square feet, up 20 percent from the 2,000 square feet observed in 2000. Bigger houses carry bigger price tags, and that can price first-timers in particular out of the market in many cases.

Pricing people out?
With home prices rising so rapidly but wages mostly remaining stagnant even as the economy recovers, another type of affordability issue is coming to the fore, according to separate Zillow data. Today, households with incomes in the bottom third of the country have to pay about 23 percent of their salaries for homes priced in the bottom third of the market. Meanwhile, buyers in the middle third buying middle-third-priced homes pay a little more than 14 percent of their incomes, and those in the top third buying the most valuable homes pay only 11.1 percent.

However, despite these issues, would-be homebuyers may want to be a little more vigilant about finding affordable properties in the near future, as both prices and rates are expected to rise within the next several months and beyond.