Are you planning to buy a house? A report released Monday by the American Enterprise Institute says that to reach that goal, you’ll likely need to make close to six figures and have $13,000 saved.
The average first-time buyer in 2023 made a down payment of $12,789 and had a credit score of 728. They also made a median income of $97,000. The study was done by a right-leaning think tank.
To do its research, AEI looked at information from the federal Home Mortgage Disclosure Act, government-run businesses, public records of sales, and home assessments.
About 78% of all first-time home buyers in 2023 were included in the data. Deals where the buyer paid cash or got a private loan were not included. AEI said that the average age of a first-time buyer in 2023 was 30, and the average age of a repeat buyer was 40. In previous years, AEI did not look into how old buyers were.
What they found makes it clear that buying a house now costs a lot more than it did ten years ago. AEI found that the average first-time home buyer in 2013 made $63,000 a year, put down $6,947, and had a credit score of 715. The amounts were not changed to account for inflation, but in 2023 dollars, they would be about $82,200 and $9,062, respectively. According to AEI’s report, the average down payment on a home was 5% of the final sale price. This amount stayed the same in 2023.
A senior fellow at AEI and one of the report’s authors, Tobias Peter, told MarketWatch that the average first-time buyer in 2023 will pay over $1,100 more each month on their mortgage than the average first-time buyer in 2013. He said that the main reasons are that home prices and mortgage rates are going up.
AEI said that the average price of a home in 2023 was $342,138, up from $189,200 in 2013. In 2023, the average rate for a 30-year mortgage was 6.6%, up from 3.9% in 2013. For this reason, the average monthly mortgage payment, which includes both principal and interest, was $1,900 in 2023, up from $834 ten years before.
Also, buyers today are taking out more loans to be able to buy a home. They had 42% of their income going towards debt in 2023, up from 37% in 2013.
“Most people who buy their first home have less cash on hand and more debt to repay,” Peter said. “It makes first-time home buyers more vulnerable, but it’s good for people who already own homes because their assets have grown much faster than they would have otherwise.”
Also, the homes that first-time buyers bought last year were smaller than the homes that they bought ten years ago. AEI found that the average home size dropped from 1,588 square feet in 2013 to 1,464 square feet in 2023.
Despite the fact that housing prices were going down, some people who wanted to buy a home were still able to make it happen.
The report’s authors said, “Despite persistent challenges, [first-time home buyers] are forging ahead, surpassing repeat buyers and fostering a more diverse demographic composition among their ranks.” Buyers of colour now make up 35% of government-backed mortgages, up from 26% a decade ago. “This trend shows how much progress has been made over the years for all racial and ethnic groups compared to non-Hispanic whites.”
The Joint Centre for Housing Studies at Harvard University says that households of colour are still less likely to own their own homes than white households in almost every U.S. state. Only 47% of households of colour owned their homes in the U.S. between 2015 and 2019. Nearly 72% of white households owned their homes.
Peter also said that the cost of housing is becoming a “bigger political issue.” A recent Redfin poll showed that Gen Z voters put it as their number one priority when they went to the polls. He said that younger voters might “fear that because prices are going up, they may be stuck in their parents’ basement for longer.”
