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The number of people buying homes for the first time ticked up over the last year, but high prices and expensive mortgage rates meant that buyers needed more money to afford their dreams of acquiring a home.
First-time buyers made up 32 percent of home purchasers in 2023, a 6 percent jump from the historic lows of the previous year, according to the National Association of Realtors (NAR). Those buyers, however, needed to make $107,000, which is $20,000 more than in 2022 to be able to pay for a home.
"What we're seeing is a different type of first time home buyer who's coming into the market, it's one who has a higher household income, so they're able to afford this housing market," NAR deputy chief economist Jessica Lautz told Newsweek.
The housing market in the United States has been struggling with affordability for months as mortgage rates have hit close to 8 percent, the highest they have been in 20 years. Meanwhile, the low supply of homes has also pushed up prices, making it tougher for Americans to afford to acquire a home.
Why first-time homebuyers are on the rise
This dynamic means that a significant number of people are getting priced out of the market, which in turn has created less competition for buyers who can afford the expensive environment.
"There is less competition in this market because of the rising rates. So if a buyer has a higher income and they're able to save for a down payment, they'd be able to enter into this market without necessarily facing as many multiple offers as they had the past year," Lautz said.
Home prices are elevated in 80 percent of the markets that NAR examined. Lautz said there has been some evidence of a slight decline in mortgage rates that could, heading into 2024, invite some more home buyers into the fray.
"Our expectation is, we could see first-hand home buyers come into the market who have been priced out of the market [with] lower household incomes," Lautz told Newsweek.
But as more buyers start to compete for houses, that could result in more bidding wars and as a consequence the market could see prices jump higher.
"If we see a lot of demand come into the market, we also could see multiple offers come back," Lautz added.
Affordability challenges in the housing market
NAR's deputy chief economist said that there are some indications that inflation, which rose to 40-year highs in 2022 prompting the Federal Reserve to hike rates at the most rapid clip since the 1980s, has been slowing. The Fed held rates for the second consecutive meeting in November at their current 5.25 to 5.5 percent range, itself a two-decade high.
"Inflation has been coming down from the highs that it was that the Fed has paused the increase in the Fed fund rates for last two meetings, so the expectation is that rates could come down in 2024 if everything stays the same and is headed the same direction," Lautz said.
Lautz added that the housing market is still tilting in the favor of sellers and that buyers should expect a tight inventory of homes with little affordable price points.
"They may need to have patience because they may need to put an offer on a home and may not have the opportunity to actually win that bid because of the tight inventory that we have. But I would also say that every market in the country is different," she said.
Changing demographics in the homebuyer profile
NAR found that the profile of home buyers shifted over the last year. The data, which was published Monday, found that 70 percent of recent buyers did not have a child under the age of 18 in their home, the highest share recorded, compared to about 40 years ago when a little over 40 percent were without children.
About two-thirds of new buyers were married, the lowest such figure in more than a decade, while single purchasers saw an increase.
A significant group of buyers—14 percent—chose multigenerational homes with care for aging parents, being one of the reasons for such a purchase.
Nearly 8 out of 10 buyers of new homes were white Americans, compared with 7 percent who were Hispanic or Latino, 7 percent who were Black or African American and 6 percent who were Asian or Pacific Islander, according to NAR data.
"Home buyers in the past year were more diverse, both racially and ethnically, with increases noted among minority buyers, buyers who were born outside of the U.S. and buyers whose primary language is not English," Lautz said in an earlier statement on NAR's website. "This shows encouraging signs that the homeownership rate may narrow in the future as more minority buyers enter the market."
About the writer
Omar Mohammed is a Newsweek reporter based in the Greater Boston area. His focus is reporting on the Economy and ... Read more