Real Estate News

First-time buyers running into difficulties in housing market

Published: 01 Nov 2017

The housing market continues to shift under the weight of inventory constraints that drive home prices higher. This situation has created a more stagnant market than many experts might have expected at the start of the year and mostly impacted young people hoping to become first-time buyers while affordability remains high.

In 2017, first-timers have made up made up just 34 percent of all buyers in the housing market, down from 35 percent last year, according to the latest annual Profile of Home Buyers and Sellers from the National Association of Realtors. The latest number was the fourth-lowest share observed since the NAR started tracking this data in 1981, and in the nearly four decades since, first-time buyers averaged 39 percent of the market.

Rising home values and limited inventories of lower-priced properties seem to be the culprit here, as younger shoppers often can't afford median-priced homes.

"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," said Lawrence Yun, NAR chief economist.

Many homebuyers may struggle to overcome inventory shortages.Many homebuyers may struggle to overcome inventory shortages.

Lingering benefits
The good news, for now, is that the actual cost of buying a home remains well below pre-recession averages, according to the latest Real Home Price Index from First American Financial. This index, based on a number of factors affecting home affordability, shows the cost of buying slipped 0.4 percent between July and August, but this was still up nearly 10 percent on an annual basis.

However, despite those increases, successful buyers in today's market are still doing well for themselves, the data showed. The actual cost of buying a home is still almost 40 percent below where it was at the height of the housing boom, as well as being more than 17 percent lower than at the turn of the century.

"Though consumer house-buying power improved in August, affordability is likely to fade as mortgage rates are expected to rise in the months to come, but lower affordability is only significant to potential first-time buyers," said First American chief economist Mark Fleming.

This predicted trend may provide first-timers with more incentive to get into the market sooner than later because both rates and prices are probably going to rise before the end of the year.

Already underway
Indeed, on Oct. 30, the average 30-year fixed-rate mortgage carried a rate of 3.88 percent, up from 3.86 percent a week earlier and 3.8 percent on a monthly basis, according to Bankrate. Likewise, 15-year FRMs averaged 3.14 percent, up from 3.09 percent a week prior. However, it's worth noting that these increases are relatively minor and could cost buyers or refinancers only a few extra dollars per month.

Mortgage shoppers can often be scared off by slightly higher rates such as these, but experts advise that waiting in today's environment could lead to buyers paying significantly higher rates a few months later.