In the third quarter, first-time home buyers saw a slight improvement in affordability, yet the market remains challenging. Recent data from the National Association of Realtors (2024) reveals that the median age for first-time home buyers has risen to 38, setting a new record, which highlights the tough conditions prevailing in the market. While there have been some positive shifts, these have not been significant enough to offer substantial relief.
During the third quarter, the average mortgage rates decreased from 7% to 6.5%, leading to lower interest costs. Additionally, the availability of homes saw a boost with an increase of 16% in active listings, while list prices experienced a minor dip of 2%. Nevertheless, these figures have yet to match the more favorable conditions seen a few years ago, indicating that inventory still has a long way to grow.
The changes have not been uniform across different metro areas. In some regions, particularly where the markets had been quite heated, potential buyers observed more notable improvements. For instance, Miami experienced a 14% drop in typical list prices, alongside a substantial 71% increase in available homes. Similarly, in San Diego, list prices fell by 10%, and the number of active listings surged by 78%.
## More Homes Yet Inventory Remains Low
Nationwide, active listings rose by 16% compared with the previous quarter, and were up 35% compared to the same time last year. Despite these gains, inventory is still 26% below the levels they were five years ago, indicating a persistent shortage. Some metro areas, however, have marked notable improvements. In particular, eight metropolitan areas have seen inventory improve by over 60% since the third quarter of 2023. Cities like Tampa and San Diego, among several others, have seen significant increases in available homes.
## A New Reality for First Time Homebuyers
This increased inventory means buyers have a better chance to find properties that match their preferences. Still, most local markets continue to suffer from low inventory. Enlisting a knowledgeable real estate agent can provide insights tailored to specific budgets and needs. Buyers should prepare for potential compromises, such as considering different neighborhoods or adjusting expectations for features like the number of bedrooms, to successfully secure a home purchase.
## Steady List Prices but High Monthly Payments
High interest rates and prices often deter buyers, temporarily increasing available homes and potentially easing price pressures. Although list prices saw a slight decrease of 2% in the third quarter, estimated monthly housing payments for first-time buyers remain steep. With a 9% down payment, which is the median for these buyers in 2024, new homeowners can expect to shell out approximately $3,240 monthly, covering the loan principal, interest, homeowner’s insurance, taxes, and private mortgage insurance.
In pricier markets, a 9% down payment may not suffice due to home prices exceeding conventional loan limits set by the Federal Housing Finance Authority, necessitating a jumbo mortgage with more stringent requirements, including a higher down payment.
## Planning Ahead as a First Time Buyer
When purchasing a home, several factors, including interest rates, homeowner’s insurance, real estate taxes, and private mortgage insurance, influence monthly payments. A larger down payment can reduce monthly housing costs and might even secure a lower interest rate, making it a crucial consideration for potential buyers.
## Looking Forward: What to Expect
Looking ahead to 2025, mortgage rates are projected to decline modestly, possibly reaching around 6% by the end of the year. This could incentivize more homeowners to list their homes, potentially boosting inventory levels, though significant price reductions are unlikely. Greater selection and lower rates could also lead to increased competition in the market.
Despite ongoing challenges, prospective buyers can enhance their chances of purchasing a home by focusing on controllable factors such as saving for a larger down payment, maintaining a strong credit score, and staying open-minded regarding property choices.
Data for this analysis draws from a variety of sources, including the Realtor.com residential listings database, the National Association of Realtors, and U.S. Census Bureau reports, offering a comprehensive view of the evolving market conditions.
