African American family packing things in home

Share of first-time homebuyers drops to historic low 

A lack of inventory, rising interest rates and inflation are cutting more first-time buyers — especially minority buyers — out of the market.

Updated November 18, 2022
4 minutes

Key points:

  • A lack of inventory, rising interest rates and inflation are cutting more first-time buyers — especially minority buyers — out of the market.
  • Agents are helping would-be buyers to adjust their home searches as the landscape shifts.
  • Declines were greater among some minority groups, with the share of first-time homebuyers who are Black or Asian falling to 3% and 2%, respectively.

First-time homebuyers made up 26% of all homebuyers for the fiscal year that ended June 22  — an eight point decline from a year earlier and the lowest percentage since the National Association of Realtors started reporting the data in 1981.

"Pressures in housing market affordability — lack of inventory, rising interest rates and outside economic forces are all making it difficult for people who are first-time buyers to save for down payments," Jessica Lautz, vice president of demographics and behavioral insights at NAR, said in an interview on Friday.

Particularly hard hit are minority buyers who may lack housing equity or generational transfers of wealth, Lautz said.

The share of first-time buyers has generally ranged between 30% and 40% for the past 10 years, according to NAR's 2022 Profile of Home Buyers and Sellers.

Donna Deaton, a sales associate and manager with RE/MAX Victory in Liberty Township, Ohio, noted that the homes first-time buyers could afford four or five months ago may be beyond their budgets today because of higher interest rates. 

"But they can afford a lower-priced home," Deaton said. "The key is communication with not only the buyers but their lender. As rates change, so do their qualifications for the amount of the purchase." 

Deaton continued: "We have [a] conversation when we first start working with all buyers that the rates will change — possibly before they are under contract — which could mean their home search and criteria may change."

Potential sellers are also looking out for rate changes. An increasing number of existing home owners also are choosing not to sell their homes and wait out the market to see if interest rates will drop before they have to purchase another home after selling their current properties.

"For someone who is a homeowner today, they have housing equity in their home," Lautz said. "Someone who purchased their home a decade ago has $210,000 in housing equity. Many people are choosing to stay put and even remodel before they make a move," she said.

Jessica Riffle Edwards, who owns Jessica Edwards & Associates in Wilmington, North Carolina, said that she considers low inventory "the No. 1 hurdle… Even with the rise of interest rates, the biggest driving factor really remains to be the lack of inventory actively on the market, coming to market or the lack of housing options for our buyers to purchase."

Asian, Black buyers make up a smaller share

Fewer minorities made up the pool of total buyers: Black buyers, who are more likely to be first-time buyers, comprised 3% of all buyers in the study, and Asian-Americans represented 2% of buyers, according to the NAR report — each group comprised 6% of buyers the previous year.

With rent payments due on their current housing, they may lack the savings for a down payment. Higher interest rates push them further out of the market. "They may find it hard to save for a down payment or perhaps work on their credit score and bring down other debt to enter home ownership," Lautz said Friday.

The age of first-time buyers increased to 36, up from 33 the previous year, likely because buyers needed more time to save up for a down payment due to rising home prices — or falling incomes. 

Median household income for first-time buyers dropped significantly over the 12-month period, falling from $86,500 to $71,000.

"For first-time homebuyers, the lack of affordability is playing a key role in holding them back from homeownership," said Lautz.

Edwards said she advises all of her clients — whether first-time or repeat buyers — to speak with several lenders to understand financing options and "make the choice that best fits their needs." 

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