First-Time Home Buyers Hit Hardest by Home Price Appreciation

Blog posted On November 09, 2017

Home price appreciation has strained housing activity over the past few years, particularly the first-time home buyer demographic.  The National Association of Realtors (NAR) reports, in 2017 home sales to first-time home buyers dropped 34%.  Among the other factors hampering first-time home buyer activity are student debt and lack of available inventory.

Home price appreciation due to lack of available inventory is hurting first-time home buyers in many metros across the country.  The latest data from the Case-Shiller home price index showed every metro appreciated except for San Francisco.  As home prices increase, down payment requirements increase.  Even with low down payment programs, many first-time home buyers are still struggling to amass the savings for a down payment.  For example, a 10% down payment for a home priced at $300,000 is $30,000.  In 2015, two-thirds of bachelor degree graduates had an average student loan debt of $30,100.

US households are taking on more debt than ever to pay for college education.  Rising costs of living, tuition increases, and limited savings have led to this need.  Many college graduates are moving in with family or choosing to live in shared living situations after college because they are unable to simultaneously save for a down payment and pay off student loans.  In 2017, 42% of student loan borrowers reported delaying moving out of a family member’s home after college, with 24% delaying for at least two years (NAR). 

Persistent inventory shortages, especially in the starter home category, are also straining the first-time home buyer market.  NAR Chief Economist Lawrence Yun stated, “with the lower end of the market seeing the worst of the supply crunch, house hunters faced mounting odds in finding their first home.  Multiple offers were a common occurrence, investors paying in cash had the upper hand, and prices kept climbing, which yanked home ownership out of reach for countless would-be buyers.”

Responsible homeownership is a driving force for the economic momentum.  New home construction boosts the creation of construction jobs and stimulates the purchase of construction materials.  Homeowners reinvest in their local community and build strong neighborhoods.  Creative programs like HomeFundIt^TM, the down payment crowdfunding platform, make it possible for more first-time home buyers to enter this competitive market.

Sources: CNBC, National Association of Realtors