"First-time Homebuyers Hit a Record Low
With the high cost of housing and higher interest rates, the number of people trying to get their first home dropped to a record low- around 23%- in 2024. The average age of the first-time homebuyer has increased 10 years over the historical average, to 38 years old. The median income is now $97,000, and those first-time homebuyers are coming up with an average down payment of 9% of the home's value. Many of these young buyers are using FHA loans, which require a very small down payment, and- according to research- roughly 30% of all FHA mortgages have a debt service ratio of over 50%. This means more than half of these buyers' incomes is going toward servicing debt. This could be a hard pill to swallow for young buyers, with not much money left over for luxuries like vacations and new cars. However, if they understand that when they buy the home, they'll really need to tighten their belts for the next three to four years, they will probably be fine.
New home builders are doing what they can to try to get rid of the largest inventory of unsold homes on their lots since 2009. The median price of a new home is currently less than 1% higher than the median price of existing properties, which historically has seen a 17% premium. The home builders are using profits from their homes to buy down mortgages. Even though the 30-year mortgage was recently around 6.8%, home builders can buy these mortgages down, which has led buyers of new homes to a rate around 5%. Buying down these rates has cost home builders about 8% of the purchase price of the home. This reduces their profits, but it's better than the alternative of sitting on unsold homes with a carrying cost for the builder. I don't see this situation getting better anytime soon, because I'm not looking for a large decrease in mortgage rates, and incomes over the next year will probably increase somewhere around 3 to 4%. We continue to believe the rapid increase in the price of homes over the last few years will not last, and it will now take some time to get back to normal market. Maybe we will see a better real estate market in 2027 or 2028."
Reference: Brent Wilsey, Wilsey Asset Management