Yahoo Finance Most homebuyers now need six-figure income to achieve the 'American dream'
More first-time homebuyers returned to the market in the last year, but they had to come with bigger wads of cash.
Between July 2022 and June 2023, first-time homebuyers made up 32% of all buyers, according to the annual report from the National Association of Realtors (NAR) profiling homebuyers and sellers using data from 6,817 survey respondents. While that’s still down from the two-decade average of 36.6%, it’s up from 26% recorded the previous year, which was the lowest in the report’s history.
The uptick in entry-level buyers doesn’t mean homeownership is back on the table for everyone. A large portion of those first-time buyers were wealthier, one of the researchers said, allowing them to circumvent the persistent affordability challenges plaguing the market.
"Because of the rising interest rate, the buyers who were competing in the market were higher-income buyers who had the ability to compete," Dr. Jessica Lautz, NAR’s deputy chief economist, told Yahoo Finance.
Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards
Limited inventory and the resulting high prices squeezed out moderate-income buyers in 2023.
The median income of the US homebuyer jumped 21.6% to $107,000 this year from $88,000, according to NAR’s 2023 report. The median household income was $111,700 for repeat buyers, up 16.4% from the previous report. And first-time buyers reported a median income of $95,900, up a whopping 35% from last year’s $71,000.
All were well above the national median income of $74,580 in 2022.
"While prices have moderated recently, they are still very high relative to pre-2020," Tim Shaw, policy director at the Aspen Institute, wrote to Yahoo Finance. "In some respects, homebuyer income is just catching up."
For instance, home prices hit a record high in June 2022, according to the S&P CoreLogic Case-Shiller National Home Price Index, before declining as mortgage rates rose. That decline was erased this year, with the index hitting a new high in July and then another in August.
"And of course, the high interest rates on mortgages change the price and affordability calculus tremendously," Shaw added.
From June 2022 to June 2023 — during the NAR’s reporting period — the rate on the 30-year mortgage jumped to 6.79% from 5.09%, briefly topping 7% in November 2022. The rate has increased even further since, sitting above 7% for 13 straight weeks, according to Freddie Mac.
Read more: Mortgage rates at 20-year high: Is 2023 a good time to buy a house?
One way to mitigate the rise in mortgage rates is to put down more money for a purchase. And that’s exactly what buyers have been doing.
The typical down payment for first-time buyers was 8% of the purchase price, the highest share since 1997 when it was 9%. The average down payment for repeat buyers was 19%, marking the highest share since 2005 when it was 21%, the NAR found.
An earlier measure of down payments found that the US median down payment increased 11.3% year over year in the third quarter to $30,434, the highest total since Realtor.com started tracking the data in 2013.
To bring that cash to the table, entry-level buyers relied more on financial assets this year. The NAR found that 24% of buyers sold stock, bonds, or cryptocurrency or tapped 401(k), pensions, or an IRA, up from 20% last year.
For moderate-income folks, the likelihood of achieving the American dream to own a home seems slim, even though that’s the biggest reason why people jump in the market.
The primary reason first-time buyers wanted a home remained consistent in 2023 when compared with previous years. The NAR found 60% of new Americans buyers said it was their desire to own a house of their own that motivated them.
"This is the most important reason to buy," Lautz said. "It's just to have it on their own, and I suspect that it really just comes down to the American dream of homeownership."
A dream that appears to be slipping away for many.
Almost 3 in 4 renters don’t believe they can ever afford a home, a survey of 1,000 renters by Home Bay, a digital real estate brokerage firm, shows. And two-thirds of renters say that today’s housing prices make them feel pessimistic about the housing market.
Recent monthly surveys from Fannie Mae on housing sentiment show that the downbeat outlook hasn’t gone away — 85% of respondents in October’s survey said it's a bad time to buy a home.
"We certainly hear hopelessness and frustration about the ability to purchase a home," Shaw said. "It is hard to know if the trend will get better or worse because part of the affordability issue is the interest rate environment we’re in."
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
