Why Now is the Best time to Buy Real Estate
In 2022, the average age of first-time homebuyers was 36, according to the National Association of Realtors (NAR). This is up from 33 in 2021.
A more notable stat, however, is that only 26% of homebuyers in 2022 were first-time homebuyers — the lowest percentage since the NAR started tracking the metric. It’s also a dramatic decrease from 2010, when first-time homebuyers accounted for 50% of all homebuyers.
The increase in age and decrease in first-time homebuying in 2022 shouldn’t come as a shock. Home prices have skyrocketed in the last few years, with the median home sales price rising to $428,700 in 2022 — an increase of $58,900 from 2021
Homeownership rates by year
State statistics show that increases in the average cost of living lead to lower homeownership rates — in some states more than others. But what does it look like on a national scale? And how have homeownership rates shifted over time?
The homeownership rate in Q3 of 2022 was 66%, a slight increase from previous years. However, since 2000, homeownership has dropped significantly, decreasing from 68% in 2003 to its lowest point in decades — 63% in 2016.
The reason is: Homes are becoming less affordable. Research shows that 68 out of 100 Americans could afford a home in 1960. However, in 2022, only 43 out of 100 Americans could afford a home.
Homeownership rates by generation
The shift in the age of first-time home buyers, along with the general decrease in younger homeowners, is most apparent on a generational scale.
Millennials, especially, are buying homes later in life compared to preceding generations. Some particularly telling statistics include:
- Younger millennials (23 to 31 years old) comprise only 18% of the share of homebuyers
- 60% of older millennials (roughly 40-42 years old) own a home. At that age, 73% of the Silent Generation owned homes, 68% of Baby Boomers owned homes and 64% of Generation X owned homes.
- 63% of Millennials haven’t saved for a down payment on a home.
The final statistic begs an interesting question: Why aren’t more millennials saving for a down payment? According to Apartment List’s 2022 Millennial Homeownership Report, eight out of 10 millennials want to own a home someday but haven’t been able to save due to student loan debt and higher costs of living.
First-time homebuyer statistics
With upward trends in the cost of homebuying, many Americans can’t afford a mortgage and, as a result, are deciding to rent for longer. While these renters may be considered high-income individuals, they prioritize paying off student loans and credit card debt — rather than saving for a down payment.
Key statistics + insights
- In 66% of housing markets, buying is more affordable than renting. (ATTOM Data Solutions)
- 44.1 million American households are renters. (National Multifamily Housing Council)
- In the year 2016, 27% of Americans rented their homes. (Statista)
- Nationwide, renters spend around $485 billion in rent every year. (PolicyAdvice)
- 48,248 (0.11%) of rental homes are rent-controlled. (iPropertyManagement)
- Black and Hispanic households are twice as likely to rent compared to white households. (Pew Research)
- The median U.S. rent accounts for 29.1% of the average American household income. (Zillow)
Homebuying Stats
- The average home price in 2022 was $348,000.
- The median take-home income of first-time homebuyers in 2020 was $47,952.
- The median down payment for a single-family home at the end of 2021 was $26,000. This is up 19% from 2020.
- 29% of homebuyers say saving for a down payment is the most difficult part of buying a home.
- The number of higher-income renters has doubled in the last ten years.
Why are Americans waiting until later in life to buy their first home?
While rising home prices are a top reason that Americans are putting off buying their first home, there are a number of other factors contributing to this increase in age. Some of these include:
Inflated home prices
According to CoreLogic, national home prices rose 8.6% year over year from November 2021 to November 2022.
While this growth may slow in a couple of years, it doesn’t change the fact that it’s unusually expensive to buy a home right now, encouraging some potential buyers to wait and see how the housing market will move.
Student loan debt
As of September 2022, student loan debt in America was at around $1.76 trillion, with one out of five adults claiming to be in student loan debt.
According to the NAR, 60% of millennials who don’t own a home say that student loan debt is delaying their plans to buy a home. With housing becoming more expensive, younger people feel forced to decide between paying off student debt or committing to another expense, like buying a home or saving for retirement.
Career changes
20% of Americans have changed careers since 2020 — 55% of which were millennials.
With more Americans changing careers at the time when they’d traditionally buy a home, there’s a lesser chance of Americans settling into a mortgage earlier in life.
While COVID-19 may have been the major prompt for “The Great Resignation” in 2021 and the beginning of 2022, layoffs have been the story of the latter part of 2022 and early 2023. In the first month of 2023, more than 20 major corporations, headlined by Amazon, Google and Microsoft, have participated in mass layoffs
Competition from investors
According to a study from CoreLogic, purchases of single-family homes by investors increased from 14% in June 2020 to almost 27% by September 2021.
In most cases, deep-pocketed investors, like home flippers, Wall Street-backed institutions and online homebuying companies, are able to outbid individuals and families when it comes to competing for a home.
Advantages of buying a house at a younger age
You shouldn’t buy a home until you’re financially able; however, if you can afford a mortgage at a younger age, there are some clear advantages of owning over renting.
Less money spent on rent
Owning a home can protect you from rent increases at different complexes and properties. When you buy a house, you’re locked in at the price of the home and will have the same monthly payments throughout your time as the homeowners — regardless of the ebbs and flows of the housing market.
Increases to credit score
When you start shopping around for mortgages and eventually secure one, your credit score will initially dip. However, if you’ve never owned a home before, adding a mortgage to your credit history and making consistent on-time payments will help improve your score over time.
Tax deductions
Unlike renters, homeowners can take advantage of mortgage interest deductions. This itemized deduction of mortgage interest allows homeowners to decrease their taxable income.
Additionally, if you sell your home down the road, you may qualify for capital gains tax breaks, which allows you to take home the difference in the value of the home when you bought it and how much you sold it for.
Forced saving
Buying a home is a way to save without even knowing it. Consider this: you buy a home and live in it for 8 years, which is the average length of homeownership. When you move and sell your home, you accumulate the value of your home.
Barring a recession or a market crash, home values tend to rise over time, making it likely you’ll profit from the sale of your home. In a sense, your home does the saving for you.
Some MYTHS and TRUTHS on when is the right time to buy a home?
- You’re debt free: When you’ve paid off your student debt and have zero credit card debt, you’re in a good position to start looking for a home. FALSE Although this sounds like a good idea, most everyone has some type of debt. Lenders will look at your debt to income ratio. You can pay rent or you can pay a mortgage.
- You can afford a down payment: A down payment is the first large payment you’ll commit to your home, so you should ensure you’ve saved enough. FALSE It’s important to note that the process can be more affordable with first-time homebuyer programs. These federally-backed loans and grants provide different funding options for first-time home buyers. VA loans can be at 0% down payment.
- You have a steady income: As a homeowner, you’ll be responsible for regular monthly payments, so you need to have regular income flowing in. TRUE
- You have a good credit score: A score of 620 or higher is typically needed to buy a home, so make sure your credit is in good shape. FALSE But you can always get someone to co-sign with you to help you get started.
- You’re settled in one place: Mortgages tend to be 15-30 years long. This doesn’t mean you need to stay in your home for 30 years, but you should be committed to the city or town you’ve chosen to live in. FALSE. As long as you plan to stay in one place for over 1 year, the numbers will show that it is more cost effective to own vs rent.
- You’ve budgeted with all the costs of homeownership in mind: From maintenance to closing costs, there are many costs associated with home ownership. Make sure you’ve considered them all before you buy. FALSE Of course you have to know what it will cost you to own, but you also need to know what it cost to rent and to remember that the value of the home will continue to rise over time.
If you are thinking of Buying, Selling of Investing in Real Estate, call Tim Cowan for a FREE consultation. 678-787-2720 or visit www.TimCowan.com
