First-Time Buyers Retreat From Spring Market

Builders are making efforts to ramp up construction, but a large portion of home starts are in luxury markets, leaving inventory shortages in lower price brackets that are helping to sideline many first-time buyers. In the first two months of 2018, first-timers made up 29 percent of all home buyers, down from 32 percent a year ago, according to the latest REALTORS® Confidence Index Survey. Nearly 44 percent of properties were listed at $250,000 or less in February, the survey shows. That’s a far cry from the 75 percent that were listed in that price point in May 2012, according to realtor.com® housing data.

Higher home prices have had a clear impact on buyers heading into the spring. Consumers’ average monthly mortgage debt-to-income ratio, after factoring in a 3.5 percent down payment, mortgage insurance, taxes, and maintenance costs, rises to 34 percent. That exceeds the 30 percent threshold that most financial analysts consider healthy. A 20 percent down payment would bring the debt-to-income ratios down to 27 percent, but that would cost buyers an extra $48,340 upfront, according to the National Association of REALTORS® Economists’ Outlook blog.

Saving for a down payment could be problematic for first-time buyers, since they have no equity to use. The average savings of non-homeowners was $5,200 in 2016, according to data from the Federal Reserve Board. The chart below uses realtor.com® data to show home prices across the country.

 

Source: “First-Time Buyers Sidelined by Lack of Supply and Rising Prices,” National Association of REALTORS® Economists’ Outlook blog (April 10, 2018)