Based on recent proposals and policy dialogue, it would appear that first-time home buyers (FTB) are indeed facing desperate times. For example, in a recent Urban Institute study, Michael Stegman, Ted Tozer, and Richard Green advocate for a zero-downpayment Federal Housing Administration (FHA) mortgage. They argue that this would be a more efficient way to deliver much needed support to help households transition to homeownership given the challenges of high house prices and mortgage rates.
What is the evidence that FTBs are facing unprecedented challenges? The National Association of Realtors (NAR) in its 2024 report Profile of Home Buyers and Sellers states that FTBs represented only 24 percent of home sales (between July 2023 and June 2024). This share is below the prior year’s value of 32 percent and the lowest in the history of their data reporting going all the way back to 1981. Similarly, NAR finds that the typical FTB was 38 years old—7 years older than normal. The Urban Institute study points out that the Federal Reserve’s most recent Survey of Consumer Finances shows that nearly 90 percent of renters lack the minimum 3.5 percent downpayment to purchase an average-priced home with an FHA mortgage. A combination of eroding affordability and increased competition from all-cash buyers have FTBs apparently on the ropes.
As Thomas Sowell of the Hoover Institution has cautioned, it is worthwhile to examine the evidence thoroughly before declaring a crisis that needs to be addressed. Regarding the NAR statistics described in the previous paragraph, they are based on their annual survey of home buyers and sellers. For the 2023 report, the NAR sent out 189,750 surveys to a “representative sample” of buyers and sellers. However, only 6,817 completed surveys were received back indicating a response rate of just 3.6 percent. Importantly, it is not clear how representative this sample is given the small response rate.
To assess the condition of FTBs, we use the Federal Reserve Bank of New York’s Consumer Credit Panel (CCP), a detailed, up-to-date source for information on U.S. household debt and credit. The CCP is drawn from anonymized credit bureau data provided by Equifax and includes quarterly information on the liabilities of a dynamic panel of individuals (5 percent of the population with a credit report, or approximately 14 million individuals). As such, we argue, this data source offers a better view of the position of FTBs than the NAR survey data referenced above. We identify FTBs as households that have never had a mortgage lien.
We start by looking at the annual flow of new purchase mortgages broken down by FTBs and repeat buyers, charted below. The decline in purchase mortgage volume since 2021 reflects the low inventory of homes on the market. Homeowners with low-rate fixed-rate mortgages (FRMs) faced a financial friction to selling and moving. Mortgage rates also increased significantly from historically low levels as the Fed tightened monetary policy starting in March 2022. Note, however, that it has been a challenging market to buy a home generally as purchase mortgage volume has declined for repeat buyers as well as for FTBs.
Overall Purchase Mortgage Volume Has Declined over the Past Two Years
A better way to see how FTBs are faring relative to repeat-buyers in this tough housing market is to look at their share of new purchase mortgages. If FTBs are facing an affordability crisis that needs immediate and forceful attention, then we would expect to see a significant decline in their purchase mortgage share. However, as seen in the next chart, the FTB share of purchase mortgages has actually been slowly trending up since 2011.
First-Time Buyers’ Share of Purchase Mortgages Has Been Improving
The 2024 NAR report also points out that FTBs are increasingly competing against all-cash buyers to purchase a home. This competitive pressure will not be reflected in the FTB share of purchase mortgages. We use data from Redfin on all cash purchases to calculate the FTB share of all home purchases. An assumption that we make is that no FTB makes an all-cash purchase. The next chart shows that the FTB share of all home purchases has similarly been trending up since 2011, however with more year-to-year variability.
First-Time Buyers Are Also Making a Higher Share of All Home Purchases
The relative merits and potential problems with the proposed solutions for the FTB “crisis” is certainly a topic for future discussion. An important observation is that affordability is more likely to be improved by focusing on supply-side policies than more demand-side subsidies. However, using the CCP we show that based on additional metrics the crisis for FTBs appears to be unfounded. Rather, FTBs are proving to be more resilient than some have depicted and in a better position than many might have feared.
Donghoon Lee is an economic research advisor in Consumer Behavior Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.
Joseph Tracy is a non-resident senior scholar at the American Enterprise Institute.
How to cite this post:
Donghoon Lee and Joseph Tracy, “Are First‑Time Home Buyers Facing Desperate Times?,” Federal Reserve Bank of New York Liberty Street Economics, February 3, 2025, https://libertystreeteconomics.newyorkfed.org/2025/02/are-first-time-home-buyers-facing-desperate-times/.
Disclaimer
The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).
