First-Time Buyer Share Hits 27-Year Low

First-time homebuyers accounted for only about one-third of home sales in the last year as young adults continue to struggle to get a foothold in the market, according to a report from a major housing group.

In its annual survey of homebuyers and sellers, the National Association of Realtors (NAR) found that only about 33 percent of home purchases in the last year were made by first-time buyers, down from 38 percent in last year's survey and the long-term average of 40 percent.

The last time the share of first-time buyers was this low was 1987, when they accounted for just 30 percent of home sales, NAR said.

The association's chief economist, Lawrence Yun, pointed to many of the frequently cited reasons why young Americans are staying on the sidelines, including increasing living costs and high debts.

"Rising rents and repaying student loan debt makes saving for a downpayment more difficult, especially for young adults who've experienced limited job prospects and flat wage growth since entering the workforce," Yun said.

Those aren't the only issues would-be homeowners have had to deal with in recent years. According to NAR, 47 percent of first-time buyers in the latest survey said the mortgage application and approval process was more difficult than expected, a result of a more heavily regulated and risk-averse lending environment.

For first-time buyers, the median down payment was 6 percent, less than half the median for repeat buyers. Nearly a quarter of first-time buyers said saving for that initial payment was a major hurdle, with more than half of that group citing student debt as a challenge.

In addition to tapping into their own savings to make a down payment, 26 percent of first-time buyers said they received a gift from friends or relatives, while 6 percent took a loan from them.

The vast majority—93 percent—of entry-level buyers opted for a fixed-rate mortgage, NAR reported, with 35 percent financing their home purchase through low down payment mortgages backed by the Federal Housing Administration (FHA). That figure was down from 39 percent last year, partly due to rising insurance premiums.

"FHA premiums are too high in relation to default rates and have likely dissuaded some prospective first-time buyers from entering the market," Yun said. "To put it in perspective, 56 percent of first-time buyers used a FHA loan in 2010. The current high mortgage insurance added to their monthly payment is likely causing some young adults to forgo taking out a loan."