The housing market needs first-time buyersDate posted: 3/11/15 05:30:00 AM
The health of the real estate market continues to rely heavily on first-time homebuyers, but that demographic hasn't come through for the industry in recent years. In fact, it's been the total opposite. The percentage of first-time homebuyers fell to its lowest level in nearly three decades, according to the National Association of Realtors.
For the most part, first-time homebuyers have accounted for a large portion of home purchases around the country - 40 percent, on average - according to NAR. But that number fell hard in 2014, dropping to 33 percent for the lowest total since 1987.
Lawrence Yun, chief economist for the NAR, said there are many reasons why first-time homebuyers haven't been getting into the housing market. For one, new homebuyers are generally young adults, and the millennial generation has struggled to find solid financial footing in the wake of the Great Recession.
"Rising rents and repaying student loan debt makes saving for a down payment more difficult, especially for young adults who've experienced limited job prospects and flat wage growth since entering the workforce," Yun said in a press release. "Adding more bumps in the road, is that those finally in a position to buy have had to overcome low inventory levels in their price range, competition from investors, tight credit conditions, and high mortgage insurance premiums."
Life choices are also keeping millennials out of the housing market
For past generations, getting married, buying a home and having children were top on the to-do list. But that just isn't the case any longer. Young adults have chosen to delay their plans for marriage and starting a family, two of the biggest reasons most people buy a home, in recent years, according to Zillow.
But Zillow said that phase won't last forever. The real estate firm said as millennials begin to age, they will start settling down and buying homes.
Still, Yun said it's an uphill battle for young adults who are trying to acquire a mortgage loan. Once lending standards ease up, a large number of potential buyers could make their way into the market.
"Less stringent credit standards and mortgage insurance premiums commensurate with current buyer risk profiles are needed to boost first-time buyer participation, especially with interest rates likely rising in upcoming years," Yun said.
Do young adults even want homes?
Contrary to popular belief, many young adults (ages 23 to 34 years old) are interested in owning a home, according to Zillow. Not only that, but also many young adults who are renting are confident they will own a home at some point in their life.
More than four-fifths of millennial renters told Zillow they are "confident" or "somewhat confident" that they will eventually buy a home.
Renters in older demographic groups are less optimistic. Sixty-five percent of Generation X renters (35 to 49 years old) and 48 percent of renting baby boomers (50 to 64 years old) are "confident" or "somewhat confident" they will own a home.
Zillow believes the coming year could be a great time for young adults and that certain metro areas will spark the surge. Zillow expects cities such as Chicago, Pittsburgh, Las Vegas and Atlanta will be popular destinations among millennial homebuyers. Millennials currently account for the largest demographic in the U.S. and could overtake Generation X as the nation's largest group of homebuyers.
When young adults finally get into the market, FOX News recommended first-time buyers consider their purchases as long-term investments, which is why Americans should think about resale value, school districts and the overall feel in the neighborhood.
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