As a young married couple with a small child, my wife and I have talked a lot recently about when would be the right time for us to buy a house. We like the idea of building home equity rather than renting, especially at today’s low mortgage rates, and we believe that owning a house can make us more financially comfortable. Plus many of our friends and colleagues are starting to buy homes. However, we are still young, and it is likely that we will be moving in the not-too-distant future. For that reason, we have decided to put off buying a house for at least a little while longer. In the meantime, I decided to do some research about first-time homebuyers. Who are they, and what is their homebuying experience like?
The most detailed data about homebuyers is gathered by the National Association of Realtors every year in their Profile of Home Buyers and Sellers. The most recent one I could find in full was the 2019 version. All of the information I share here comes from this document except as noted otherwise.
What is the median age of a first-time homebuyer?
The first thing I was interested in finding out was the median age of first-time homebuyers. As many people I know are currently buying their first houses, I assumed the median age would be about 30. It turns out that I was not far off. The actual median age of first-time homebuyers in 2019 was 33. Despite sensational headlines about this being the oldest age for first-time homebuyers in the history of the survey (“Young Homebuyers are Vanishing From the U.S.”), this median age has remained relatively unchanged since 1993, as you can see in the graph below.
The more obvious trend is that the median age of repeat buyers has increased dramatically from 36 in 1981 to 55 in 2019, suggesting that older people have been buying homes more in recent years, perhaps to take advantage of low interest rates or to downsize to cut costs. This actually represents quite a large population, as first-time homebuyers only account for 33% of all homebuyers. Most are these older repeat buyers.
What effect does family structure have on homebuying?
What proportion of first-time homebuyers are married? About half, as you can see in the graph below. Interestingly, the proportion of first-time buyers who are married couples has decreased about 20% since the 1980s as the proportion who are unmarried couples has increased almost the same amount. This is likely due to increases in the age people get married combined with declining stigmatization of cohabitation. Single people also buy homes, interestingly more women than men.
I would have thought that having children would be a big factor for buying a house. As the father to a very active toddler, I certainly would appreciate more space for him to run around in. However, that does not seem to be the case nationally. Only 39% of first-time homebuyers and 33% of repeat buyers have children under the age of 18, which you can see broken down into categories below. That means the majority of homebuyers have no children under the age of 18. It is possible, however, that many homebuyers buy their homes in anticipation of having children.
What price do first-time homebuyers pay for their house?
The next thing I was interested in researching, unsurprisingly, was the financial aspect. How expensive is the typical home of a first-time buyer? It turns out that the median price of a home purchased by a first-time buyer in 2019 was $215,000. Since then, the pandemic has had a big impact on house prices. Even though interest rates have fallen, house prices have skyrocketed due to increasing demand and a lack of houses on the market. According to highlights from the 2020 Profile of Home Buyers and Sellers, the overall price of a home purchased before the Covid-19 pandemic was $270,000, while this increased to $339,400 during the pandemic. This is a massive 26% increase in price in a very short time period, suggesting that now is not an ideal time to buy a home as it’s very much a seller’s market.
How do first-time buyers afford their new homes?
The median income among first-time homebuyers in 2019 was $79,400. This is higher than the national median income of $59,050, suggesting that people tend not to buy homes unless they have more money available. However, the median down payment for first-time buyers was only 6% in 2019 (7% in 2020). This is well below the traditional 20%. Even the median for repeat buyers was only 16% in both 2019 and 2020. Personally, I would suggest trying to save up enough money to put down 20% so that you do not need to purchase private mortgage insurance (PMI). This can cost you $30-$70 per month for every $100,000 you borrow, which you would not have to pay with a larger down payment.
Using these median values ($215,000 home and a 6% or $12,900 down payment), we can estimate the median mortgage payment for first-time homebuyers with a mortgage calculator. Assuming the interest rate is about the average for 2019 of 4%, the median mortgage payment on a conventional 30-year fixed loan would be about $1,300 per month. By comparison, the median gross rent in the U.S. for 2019 was $1,097. This suggests that, on average, you would have to pay about $200 more per month on mortgage payments than on rent. If you were to put 20% down instead, the mortgage payment would be about $1,100 per month, which matches the median rent. However, that means you would need to be able to put down $43,000, which is much more difficult to save up than $12,900. Interestingly, the average rent for a 2-bedroom apartment (not the median) in 2019 was $1,343, which is about the same as the monthly mortgage payment with a 6% down payment. This suggests that whether you should buy a home depends on how much rent you are paying now. If your rent is currently quite expensive, it may make sense to purchase a home instead even if you can only put down 6%, but don’t forget about closing costs, which make homebuying a more expensive proposition than it may first appear.
In fact, most homebuyers report having to compromise on some characteristic(s) of their home, whether on price, condition, size, school district, etc. Unsurprisingly, more first-time buyers had to compromise at 78% than repeat buyers at 67%. Since buying a home is such a big purchase, it’s always a good idea to shop around until you find the one you like the most, even if it’s not perfect. It’s better to spend more time looking than to end up regretting a hasty purchase, since it’s not simple or cheap to buy a different house soon after purchasing one.
What size homes do buyers typically purchase?
The typical house purchased by a first-time buyer was 1,620 square feet in 2019. For repeat buyers, the median home size was bigger at 2,000 square feet. Married couples and households with children under 18 purchased the largest homes (2,020 and 2,080 square feet, respectively). In terms of rooms, homes purchased by both first-time buyers and repeat buyers had a median of 3 bedrooms and 2 bathrooms, 4 bedrooms for households with children under 18. None of this is surprising, as repeat buyers are generally looking for larger homes and families with children want more space.
How long do homebuyers intend to stay in their new homes?
An important aspect to consider before buying a home is the length of time you plan to stay in one place. One of the main reasons my wife and I are putting off buying a house is because we plan to move within the next 2 years. If you’re not staying in one place long enough, buying a house is not likely to be financially worthwhile. If your home does not appreciate enough in value (which it probably won’t in a short time frame), you will likely end up losing money because of closing costs. Not to mention that any time and money you put in to fixing up the house and making it look the way you want will have to be done all over again. It is usually suggested that you should only buy a house if you plan to stay in it for at least 5 years. Homebuyers typically say they intend to stay in their houses even longer. The median time a first-time buyer intended to stay in their new home was 10 years in 2019. For repeat buyers, it was 15 years, as they likely are buying a home they feel is more suitable than their first. Similarly, individuals between 18-44 planned to stay in their new home for 10 years, while those between 45-64 planned to stay for 20. These are all good numbers, suggesting that most people are unlikely to lose money by selling their new home too quickly.
Buying a home for the first time is a big step in anyone’s life on the path towards financial security. For many people, it is also an essential part of becoming a “real” adult. Based on this research, we can summarize what it means to be a typical first-time homebuyer (as of 2019). They are a median age of 33. Most are married but do not have kids. Their median income is $79,400. The median price of the home they purchase is $215,000, and their median down payment is 6%. For that price, they get 1,620 square feet, 3 bedrooms and 3 bathrooms. Most compromise on their home, but regardless, they plan to stay there for 10 years.
Homebuying is an exciting experience which my family is eagerly looking forward to. For those of you planning to purchase your first home soon, I wish you the best.