The National Association of Realtors (NAR) reported that the share of first home buyers fell to a historic low of 24%.
That’s down from 32% a year ago based on transactions between July 2023 and June 2024.
At the same time, the average age of a home buyer has reached the age of 56.
All of this speaks to an increasingly unaffordable housing market, especially for renters and young people.
But there is a silver lining; we are not seeing a flood of questionable housing purchases like we did in the early 2000s.
Improved Underwriting Standards Prevent Risky Home Sales
I will start by saying that the data is clearly negative.
Those numbers from the NAR don’t paint a good picture of the housing market right now.
FTHB’s share fell to a record low of 24% in 2024, dating back to 1981. And we are well below the historical trend of 40% before 2008.
It is a sign that homes are no longer affordable for many, especially those who have never owned one before.
Without a large amount of money to sell (think repeat home buyers), it’s difficult to come up with the necessary down payment.
And without a large salary, it is almost impossible to cover the monthly payment at today’s rates.
So obviously it’s not good if you’re a teenager or renter without a parent willing to give you a down payment. Or consolidate your mortgage.
Compare that to the early 2000s when we had similar conditions in terms of housing availability.
Meanwhile, instead of home sales slowing, they’ve been rising because of things like mortgages, and option ARMs.
So while we can sit here and complain about affordability, we can also be happy that home sales have slowed at a time when buying them might not be worth it.
Of course, it’s not good for those working in the industry or prospective home buyers, especially first time home buyers.
But it can be even worse if sales continue to go where they probably shouldn’t.
Imagine If We Allowed Everyone to Get a Mortgage
Although fewer FTHBs are moving into homes, the average age of home buyers has never been higher.
It rose to 56 years for all buyers, 38 for FTHBs, and 56 for repeat buyers, all record highs!
In the early 2000s, we saw a ton of sales volume while home prices were near their peak.
The reason housing prices kept rising and sales kept going was because foreign financing was plentiful.
At that point, you may get approved for a home loan with just credit.
It doesn’t matter if you can’t document your income or come up with a down payment. Or if you didn’t have money in the bank.
And once you’re approved, it’s possible they’ll offer you an adjustable rate loan that wasn’t really affordable.
Or a 40-year mortgage or something else that doesn’t sustain or promote success as a homeowner. And after just a few months, there’s a good chance you’ve already made a mistake.
So from that point of view, it is a healthy and natural reaction for home sales to slow down.
If they continue to move upward with affordability as bad as it is today, it would be very difficult. Instead, sales have been stopped in their tracks.
Housing Market Resets Naturally
All the data really tells us is that the housing market is recovering. And it’s a sign that even home prices need to ease. Or mortgage rates need to come down. Or wages need to go up.
Or maybe a combination of all three.
It’s okay if we see a period of slowing home sales.
It tells us that something has to change. That’s not all good in the housing market. Or maybe even the economy.
That’s arguably better than forcing the home sale to continue with the old financing. And getting ourselves into the same mess we got into more than ten years ago.
I’m already reading about the calls to refinance high risk mortgages, including the FHA subprime loan proposal.
It’s only a 3.5% minimum fee, and they want to reduce it to zero.
Maybe instead we need marketers to consider. Or maybe we need more homes to build.
But forcing more sales through new and flexible monetization methods seems to be a very common method that we don’t want to go down again.
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on Twitter for the latest.
Source link
