Stats shows home ownership dreams have been delayed for first-time buyers
Recently, the National Association of Realtors released their 2022 Profile of Home Buyers and Sellers. The news wasn’t good for first-time buyers or for those who have been waiting, impatiently, to buy their first home.
Just 26% of all buyers were first-time buyers. The reason? It’s so much more expensive to buy a home. Higher interest rates combined with much higher housing prices have pushed homeownership out of reach for millions of millennials and Gen Zers.
You can see how difficult it is by the average age of today’s typical first-time buyer: 36. That’s three years older than the age of a typical first-time buyer in 2021, and nearly a full decade older than when Ilyce first started writing this column. That delay will have a profound effect on the overall net worth of homeowners, which we’ll explain in a moment.
By the way, America’s young people aren’t just waiting to buy homes. In the last few decades, young people find themselves time-shifting major life events, mostly due to cost. Take college: Thirty years ago, most college students graduated in four years. Today, colleges and universities consider it a win if their students graduate in six to eight years, according to The Hechinger Report and the government’s College Scorecard.
The most popular car loans are 24- and 60-months in length, but according to Bankrate, 72- and 84-month loans are becoming much more popular. These longer loans are cheaper on a monthly basis, but far more expensive over time.
The average age when a couple marries and has children has time-shifted as well. According to the Census Bureau, in 1989, the average woman got married for the first time when she was 23.9 years old and the average man married for the first time at 26.2. In 2021, the average woman got married for the first time at 28.6 years old and the average man was 30.4 years old. (Among first-time buyers, the research showed that 18% were unmarried couples. That’s the highest percentage on record.)
Even that doesn’t tell the full story. Couples who live in major metropolitan areas tend to marry later than those who live in more rural communities. And when it comes to having children, the latest U.S. Census Bureau figures show that, for the first time, the average age of women giving birth is now 30 in the U.S., the highest on record. If you live in a city like Chicago or New York, the average age of a woman having a first child is closer to 34.
Back to buying a home. For the vast majority of Americans, owning a home is the essence of the American dream. In fact, 62% of first-time buyers said it is the primary reason for purchasing a home.
But time-shifting their homeownership dreams comes at a high price, today and in the future. Already laden with college debt, credit card debt, and perhaps an auto loan or two, young people’s budgets are being crushed by inflation: higher food, utility, and rent payments. According to Statista, “rents grew by more than 20% in seven different states in the United States. Florida saw the highest increase in the average monthly apartment rent, with 29%.”
That makes it difficult to save for a down payment, especially when home prices have been rising astronomically year-over-year. Last year, the typical first-time buyer put down just 6% on their home versus 17% for a repeat buyer, according to the Realtors. More than a quarter of first-time buyers (26%) said saving for a down payment was the most difficult part of the process.
When it comes to net worth, home equity plays a significant part, especially as we age. According to NewRetirement.com, 66% of Americans owned their own homes, and homeowners aged 35 to 44 have $111,000 in home equity, while those 65 and over have $300,000.
As the real estate cliche goes, the younger you are when you buy your first home, the wealthier you’ll be later in life. Part of that has to do with building up the equity in your home, but also that you have more time for your home to appreciate in value. When you rent, you pay the mortgage, taxes, insurance and profit for the landlord.
Time-shifting the age of first-time buyers means less time for that home equity and home appreciation to kick in. It may also mean that more millennials, Gen Zers and even Gen Alphas will have less equity to rely on to help fund that retirement.
How will they cope? More Americans are delaying retirement due to the pandemic and inflation. Perhaps time-shifting retirement will be the answer here too.
(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through their website, bestmoneymoves.com.)
©2022 Ilyce R. Glink and Samuel J. Tamkin. Distributed by Tribune Content Agency, LLC.