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High home prices, elevated mortgage rates and low inventory, which is fueling intense competition, are standing in the way of that first purchase for aspiring homeowners, Jessica Lautz, deputy chief economist at the National Association of REALTORS®, testified to Congress on Wednesday.
“First-time home buyers continue to struggle to enter the housing market, lacking the housing equity that boosts the purchasing power of repeat buyers,” Lautz told the House Committee on Financial Services Subcommittee on Housing and Insurance.
She painted a picture of a buyer segment that’s slowly dwindling: First-time buyers comprised 32% of the market last year, remaining under the historical norm of 40%, NAR’s research shows. They’re also older: In the 1980s, the typical first-time buyer was in their late-20s; today they’re in their mid-30s. And they’ve needed nearly $25,000 more in household income in just the last year alone to afford higher home prices, Lautz said.
From March 2020 to January 2024, existing-home prices have surged by nearly 36% while household incomes have only climbed 23% in that time, she added.
Lautz also drew attention to higher mortgage rates and the effect they’re having on buyers who don’t have the benefit of using equity from a previous sale. Compare buyers who purchased a $350,000 home at a 3.5% mortgage rate two years ago to those who are paying above 6% now—the latter’s monthly mortgage payment is $680 higher, Lautz said.
For those who can still afford a home, they’re facing increased competition: Bidding wars have become more frequent due to the lack of housing inventory. In January, the typical home seller was still fielding about two or three offers, and 16% of homes were selling for over list price. “The housing market continues to have a deficit of inventory compared to demand,” she said.
Lautz said first-time buyers and others getting shut out of the housing market are being denied an opportunity to build long-term household wealth. She cited NAR research that shows the wealth held by an average homeowner is 40 times that of a renter.
“Housing wealth can be used to help children attend college, pay for remodeling costs on the home, in retirement or even help their own children achieve the dream of homeownership,” Lautz testified. “Homeownership also comes with a number of social benefits, such as educational achievement, civic participation, health benefits, property maintenance and improvement.”
Consumer surveys confirm that Americans still aspire to achieve homeownership. Forty percent of first-time buyers say they still feel now is a good time to buy, and nearly three in four are optimistic about jumping into the market soon, according to TD Bank’s newly released First-Time Homebuyer Pulse. But 62% say they fear overspending on their first home, and affordability is their top concern.
Lautz cited a lack of knowledge among consumers about down payment assistance programs and loan products with low down payment options. Since 2009, the share of buyers with FHA loans, which have low down payment requirements that help first-timers and low-income buyers, has been cut in half. “Many perspective home buyers may be unaware of low-down payment products that could bring homeownership closer within reach,” Lautz said.