On Thursday the National Association of Realtors said the share of first-time buyers is at the second lowest level in over 30 years. The 2015 Profile of Home Buyers and Sellers reveals a home buying market driven by repeat buyers within two income households. Historically, first-time buyers constitute nearly 40 percent share of primary home purchases but, according to NAR’s survey, this trend has declined for three consecutive years to 32 percent.
There are several reasons why there should be more of these buyers in the market, including low interest rates, healthy job prospects for college graduates, and the increasing costs to rent. There are, however, many obstacles slowing first-time buyers down as well. Increased rental amounts paired with current home prices are diminishing the ability to save for a down payment. This is coupled with low inventory for new and existing homes in this buyer’s price range.
31 is the median age of a first-time buyer, which remains unchanged since 2013. This home buyer’s median income was $69,400, up $1,100 from 2014. The typical first-time buyer purchased a 1,620-square-foot home (1,570 in 2014) costing $170,000. With the median amount of student loan debt for all buyers at $25,000, it’s likely some younger households with even higher levels of debt cannot afford to save for an adequate down payment or, at the very least, have decided to put off buying until their debt is more manageable.
Despite high levels of debt, potential first-time buyers may want to reconsider. Friday’s favorable job report is a positive, albeit scary lead into potentially higher mortgage rates. The Federal Reserve could very well raise interest rates sooner rather than later. While we’ll have to wait until December 15th and 16th to know for sure, it’s important to move now if you’re at all hesitant about locking in the best rate possible.
With the change incoming, there’s a list of fundamental questions you may have, such as: why do interest rates matter and what does that mean for the typical family purchasing a home? While interest rates rise, responsible buyers will most likely still enjoy the same level of access to low rates as well as loan programs. Banks, as it often happens, will likely demand higher interest payments from lesser qualified borrowers, but still approach the market aggressively.
The question we should all be asking is: should rates rise, who will the clear winners be? Home sellers, for one. “Though it’s a bit counterintuitive, higher interest rates could actually be good for home sales at the beginning of any period of rate increases. It may cause a flurry of activity as buyers look to get in a new home before future rate hikes hit,” said Whitney Fite, President of Angel Oak Home Loans in Atlanta.
Shoppers with good credit are second. “As long as you have a good credit history, you should still expect to see 0% APR promotional deals at your local car dealership or furniture store,” said Greg McBride of Bankrate. The terms may vary slightly over time, for instance, moving to 0.5% instead of 0% flat or with refinancing for 12 months instead of 18 months, he adds. But “those with good credit or who shop around will always get attractive promotional offers,” McBride said.
Still concerned about debt? There’s good news, according to Louis Navellier, chairman of money management firm Navellier & Associates in Reno: “From a consumer standpoint, even after a potential rate hike, rates will remain at historically low levels. Borrowers need to realize that mortgage rates moving from the 3s to 4s is not the end of the world, and that the affordability index remains very high.”
If you are unsure about what this means or don’t know if you can afford to purchase a home right now, please contact me. I offer free mortgage approval pre-qualification to help you determine exactly how much you can spend on your next home and what type of mortgage loan best suits your needs. I am looking forward to chatting with you about your options!