If research analysis from BuildZoom is any proof, first-time homebuyers have more problems to face than just dwindling supply and higher demand: Income requirements for mortgage lending are also on the rise.
According to a recent blog posted by Issi Romem, chief economist at BuildZoom, the average household income of first-time buyers has seen a huge jump since the housing boom of the early 2000s.
Romem used stats from the Annual Social and Economics Supplement of the Current Population Survey—a joint release from the U.S. Census and the Bureau of Labor Statistics—to analyze average household income of first-time homebuyers since 1999. According to his research, in 1999, the first-time buyer income averaged in around $86,000, gradually dropping to under $80,000 in the peak of the housing boom in 2005.
“While income in the general population remained fairly stable during the housing boom, first-time buyers’ income dropped significantly,” Romem wrote in his post, “The Rising Income of First-time Home Buyers.” “The ease of borrowing during the boom allowed households that couldn’t previously afford a home to buy one, and the inclusion of such households among first-time buyers reduced the group’s average income.”
Income remained low until the bust years later, when it slowly crept up once more. Today, the average first-time buyer income is right at 1999 levels yet again.
“Although average household income fell during the Great Recession and has yet to fully recover, first-time buyers’ income substantially increased,” Romem said. “It spiked in 2008 when lending dried up at the peak of the financial crisis and then subsided in 2009 and 2010 when the First-Time Homebuyer Credit was in place, but overall it has risen, and is now back to its level circa 2000.”
Though some may think first-time buyer income is on the rise because of widening wage gaps, Romem’s analysis proves this to be untrue.
“The average first-time buyer at the peak of the housing boom was drawn from the 56th percentile of the income distribution,” Romem wrote, “whereas now she is drawn from the 59th. In other words, during the boom first-time buyers were able to step into homeownership from lower rungs of the socioeconomic ladder.”
First-time homebuyer sales reflect these changing tides, too. According to Romem’s post, 2005 saw an all-time high of 3.2 million first-time buyers. In 2008, after the housing bust began, it dropped to under 2 million – and remains at that point to this day.
Though this drop in first-time buying can certainly dampen the housing recovery, Romem said, there are also serious social implications to worry about, too.
“The important thing to understand is that fluctuations in the number of first-time buyers go hand in hand with changes in their nature,” Romem said. “When buying a home gets more challenging it is the least financially able who drop out of the race first, and vice versa. Does the persistently low number of first-time buyers mean that homeownership is becoming the privilege of a more select few?”
In addition to his recent post on first-time buyer incomes, Romem has also posted two other blogs analyzing first-time homebuyer data: “First-time Buyers Matter for the Housing Market” and “Are First-time Buyers Buying Too Few Homes?”