The share of first-time buyers fell to 26 percent, plummeting to the lowest level in four decades, when a real estate trade association began tracking such data. First-time home buyers with moderate incomes are being pushed out of the real estate market in droves by buyers who can pay in cash.
American home buyers are older, whiter and wealthier than at any time in recent memory, with first-time buyers accounting for the smallest share of the market in 41 years, the National Association of Realtors found in its annual profile of home buyers and sellers.
White buyers accounted for 88 percent of home sales during the survey period, up from 82 percent during the same period a year earlier, reaching the highest level in 25 years, according to the association’s findings.
The new findings add weight to a hard truth that many young families have experienced as they struggle to save money to buy a home, competing in the most brutally competitive housing market in modern history: They have been elbowed out by buyers who have something they might never have — all cash.
The imbalance has made it nearly impossible for younger people with moderate and even middle incomes to own a home. The repercussions could be lasting, and deepen racial and generational disparities in homeownership. Without access to an investment that is usually a family’s biggest asset and a critical way to build generational wealth, a household may be shut out of one of the country’s best opportunities for upward mobility.
Homeownership offers another path to wealth, even if a home’s value remains flat: It provides the stability of a set, monthly mortgage payment that, as a person approaches retirement age, is often paid off in full.
While cash buyers have been insulated from the Federal Reserve’s moves to tamp down inflation by raising the federal funds rates, which indirectly impact home mortgages, first-time buyers are watching as what little buying power they had evaporates.
“This is a feedback mechanism that can potentially supercharge wealth inequality in our economy,” said Austin Clemens, the director of economic measurement policy at the Washington Center for Equitable Growth, who studies housing inequities. “It’s hitting younger people, it’s hitting lower income people. And we also find that this is hitting Hispanic and Black households especially hard.”
Historically, first-time buyers made up about 40 percent of the market. But the share of first-time buyers fell to 26 percent during the 12-month survey period, from July 2021 through June 2022, plummeting to the lowest level since the trade association began tracking such data in 1981.
The median age for first-time buyers was, at 36, the oldest it has ever been since 1981, as was the median age for repeat buyers, which rose to 59, during the survey period.
Together, Black and Asian/Pacific Islander buyers accounted for just 5 percent of all home sales, as their shares in the market dwindled in the survey year compared to the previous year. Latino and Hispanic buyers accounted for 8 percent during that period, according to the nationwide survey of 4,900 recent buyers of primary residences.
The shift comes as a historic shortage of available homes contributed to a stratospheric rise in home prices, leading to bidding wars, further driving up prices. The two-year run cooled as mortgage rates started climbing, rising above 7 percent by October, doubling in nine months. For many first-time buyers, soaring interest rates delivered a final blow, closing the door on ownership for the foreseeable future, as home sales stall amid the rising rates.
“It’s staggering what someone can lose out on when it comes to housing wealth,” said Jessica Lautz, the vice president of demographics and behavioral insights at the National Association of Realtors, adding that a typical homeowner has gained about $210,000 in equity over the past decade.
About 27 percent of repeat buyers paid all cash for their homes during the period of the survey, up from 17 percent a year earlier. By contrast, only 3 percent of first-time buyers paid in cash during the survey year.
Added to that, whatever savings first-time buyers brought to the table for a down payment and closing costs was dwarfed by a rapid rise home values, which jumped by double digit percent increases for two years. Unlike repeat home buyers, many first-time buyers spent the last two years at the mercy of an unforgiving rental market, where rents jumped by almost 18 percent over the course of 2021, according to Apartment List, further cutting into their ability to save.
Older buyers are now dominating the housing market. People from the ages of 55 to 74 accounted for 42 percent of home buyers, while the share of people from the ages of 25 to 34 accounted for only 14 percent of buyers during the survey year, a 10 percent drop from the same time period a year earlier. The rise in the age of first-time buyers ends decades of stability where they averaged around 30 to 32, according to the survey.
Last fall, Amy and Bryan Benson were finally in a position to buy, cobbling together about $25,000 — a combination of their savings and financial assistance from a first-time buyer program — for a down payment. Ending the search to buy a first home “was gut-wrenching,” said Bryan.
They blanketed their suburban Maryland neighborhood with fliers asking if anyone would sell them a house.
At first, the plan seemed to work. A seller contacted them, about a three-bedroom townhouse, which they agreed to buy for $635,000, the outer limits of their budget. They hoped they would finally get out of the cramped rental where they live with their two young children and into a house twice its size in Gaithersburg, a city about 25 miles from Washington, D.C.
But by the time the seller was ready to move forward with the deal in March 2022, interest rates had spiked and estimated $3,300 monthly mortgage payments ballooned to over $4,000. The deal fell apart.
“It was just gut-wrenching,” said Mr. Benson, 38, who works for a tech company. “It still hurts, especially knowing it doesn’t have to be this way in the sense that it used to be so much easier for people to afford to buy a home. It feels like our generation is really struggling to make that leap.”
The New York Times corresponded with dozens of people in cities around the country who described a perfect storm of conditions blocking their paths to homeownership. Many told The Times that the experience left them feeling like their lives are on hold as they wait to make decisions about careers, schools, parenthood and even furniture until they know where they are going to settle. Some said they feel trapped by high rent, describing what they see as the American dream slipping away.
A few expressed resentment toward their parents, an older generation that they said did not appreciate the barriers their children faced to ownership. Others are considering leaving their communities — and some already have — in search of affordable markets. The National Association of Realtors survey found that people were, indeed, traveling enormous distances in search of housing during the survey year, moving an average of 50 miles, up from 15 miles in previous years.
The Bensons have given up on their home search for now and are instead waiting for home prices or interest rates to fall. “We’d love to not be thinking about what to do next when our lease is up,” said Ms. Benson, 37, an executive assistant at a theater company. The housing market has slowed considerably from its peak, with sales down almost 24 percent in September 2022 from September 2021, according to the National Association of Realtors, while home prices were up 8.4 percent during the same period.
Greg McBride, the chief financial analyst for Bankrate.com, does not see the vanishing first-time buyer as a permanent condition, but instead another short-term casualty of a uniquely competitive housing market, and one that will dissipate as the market cools. “As prices settle, would-be buyers have more time to build savings, pay down debt, build their credit,” making them better positioned to buy, he said. “The environment will improve for first-time buyers. It is just that now is not a great time.”
Dr. Lautz, however, sees long-term trends beyond fluctuating home prices and interest rates that could continue to plague first-time buyers for years to come. Chief among them is a shortage of new, affordable starter homes.
Even housing markets that were once considered affordable are now challenging places to find a home.
In 2019 Lisa Sass left her career in celebrity publicity in Los Angeles in search of cheaper housing in Phoenix. At first, the decision seemed like a good one. She found a rental for around $900 a month and soon met her boyfriend, Jake Materna, also a Southern California transplant.
By the June 2020, they were looking to buy a house together, with a $500,000 budget. Almost immediately, the prices in Phoenix started to spiral, quickly pricing them out, with homes routinely selling for $100,000 over the list price.
Ms. Sass, 31, wonders how she missed an opportunity to buy when friends who bought before the pandemic fared so well, enjoying a dramatic rise in their home values. “We always say, why couldn’t we have met two years earlier so we could have had a house?” Ms. Sass said. “We came to Arizona to avoid this and yet here we are.”