The National Association of Realtors (NAR) reports that the share of first-time homebuyers has fallen to a historic low of just 24%.
This represents a decline from 32% the previous year based on transactions between July 2023 and June 2024.
Meanwhile, the typical age of a home buyer has reached an all-time high of 56 years.
All of this points to a housing market that is becoming increasingly unaffordable, especially for renters and young people.
But there is a silver lining. We’re not seeing a flood of questionable home purchases like we did in the early 2000s.
Improved underwriting standards prevent risky home sales
I’ll start by saying that the data is clearly negative.
These statistics from NAR certainly don’t paint a pretty picture of the housing market right now.
Share FTHB Hit a record low 24% in 2024, going back to 1981. This is much lower than the historical rate of 40% before 2008.
It’s a sign that homes are becoming unaffordable for most people, especially those who have never owned one before.
Without a significant amount of sales proceeds (think frequent home purchases), it is difficult to come up with the necessary down payment.
Without a large salary, it is almost impossible to afford the monthly payment at today’s prices.
Obviously, it’s not great if you’re young or renting without a parent willing to provide you with a down payment. Or co-sign your mortgage.
Compare that to the early 2000s when we had similar conditions in terms of housing affordability.
At that time, instead of slowing down, home sales continued to rise thanks to things like income-recovery loans and ARMs.
So, while we can sit here and complain about affordability, we can also be happy that home sales have slowed at a time when purchasing them may not be ideal.
Of course, this is not great for those in the industry nor for potential homebuyers, especially first-time homebuyers.
But it will be worse if sales continue to rise when they probably shouldn’t.
Imagine if we continued to approve everyone for a mortgage
While fewer FTHBs are entering homes, the typical age of homebuyers has never been higher.
It has risen to 56 years for all buyers, 38 years for FTHBs, and 56 years for repeat buyers, all record numbers!
In the early 2000s, we saw a high volume of sales while home prices were near their peak.
The reason home prices continue to rise and sales continue to move is because of the proliferation of exotic financing.
At that time, you could get approved for a home loan just by having a credit score.
It doesn’t matter if you can’t document your income or make a down payment. Or if you don’t have money in the bank.
Once you were approved, they would likely give you an adjustable rate mortgage that wasn’t really affordable.
Or a 40 year mortgage or anything else that is not sustainable or conducive to success as a homeowner. After just a few months, there was a good chance you would actually default.
From this point of view, a slowdown in home sales is a healthy and normal reaction.
If they continue to rise with affordability as bad as it is today, it will be even more worrying. Instead, sales stopped dead in their tracks.
The housing market is naturally returning to normal
All the data is really telling us is that the housing market is starting to reset. This is a sign that house prices need to ease. Or mortgage rates need to come down. Or wages must be increased.
Or perhaps a combination of all three.
It’s okay if we see a period of slowing home sales.
It tells us that something needs to change. And that’s not all well in the housing market. Or maybe even economics.
This is arguably better than forcing home sales to continue with creative financing. We are getting ourselves into the same mess we fell into more than a decade ago.
I’ve already read about calls to bring back subprime lending, including a proposal for a zero-rate FHA loan.
It’s already a minimum down payment of only 3.5%, and they want to lower it to zero.
Maybe instead we need sellers to be more reasonable. Or maybe we need to build more houses.
But simply forcing more sales with new forms of flexible financing seems like an all-too-familiar path that we don’t want to follow again.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My work experience in the early 2000s inspired me to start writing about mortgages 18 years ago to help potential (and current) homebuyers better navigate the home loan process. Follow me on Twitter for hot takes.
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