There has been a slight improvement in affordability for first-time home buyers in the third quarter, but the overall situation remains challenging. The median age of first-time home buyers has increased to 38, the highest on record, indicating tough market conditions. Despite some small improvements, the pressure on potential buyers persists.
Average mortgage rates decreased from 7% in Q2 to 6.5% in the third quarter, reducing interest costs. Inventory also saw improvement in the recent quarter, with a 16% increase in active listings at any given time. List prices remained relatively stable, decreasing by 2% quarter over quarter. However, rates and prices are still significantly higher than in previous years, and there is room for inventory growth.
The housing market varies across metro areas, with some experiencing more significant improvements as previously hot markets cool down. For example, typical list prices in Miami dropped by 14%, while the number of available homes increased by 71%. Similarly, in San Diego, list prices fell by 10%, and active listings rose by 78%.
More homes available, but still a dearth of listings
While the number of active listings increased by 16% nationwide in the third quarter compared to the previous quarter, listings are up by 35% compared to the same period last year. Despite these improvements, there is still a shortage of homes, with a 26% decrease from five years ago.
Several metro areas have seen inventory improvements over the past year, with eight metros experiencing over a 60% increase since Q3 2023. Half of the top movers are in Florida, including Tampa (+86%), San Diego (+78%), Orlando (+74%), Miami (+71%), and others.
First-time home buyer tip: With more homes on the market, you have a better chance of finding one that meets your needs. However, most housing markets still lack inventory. Working with a knowledgeable real estate agent familiar with your desired neighborhoods can provide valuable insights based on your budget and preferences. Be prepared to make compromises to achieve your goal of homeownership.
List prices steady, but monthly house payments exorbitant
While list prices remained relatively stable in the third quarter, the estimated monthly housing payment for first-time buyers remains high. Purchasing a home with a 9% down payment could result in a monthly payment of $3,240, including loan principal, interest, insurance, taxes, and private mortgage insurance.
In some metro areas, buyers may need to put down more than 9% due to high home prices exceeding conventional loan limits. This could require a jumbo mortgage with stricter requirements, including a higher down payment.
First-time home buyer tip: Your monthly housing payment depends on various factors, including home price, interest rate, insurance, taxes, down payment, and PMI. A larger down payment can lower your monthly costs and potentially secure a better interest rate.
What can first-time buyers expect from here?
Mortgage rates are projected to decrease slightly in 2025, potentially reaching around 6%. While this may lead to more homes being listed for sale, it might not be enough to lower prices significantly. Lower rates and increased inventory could result in heightened competition among buyers entering the market.
In the coming year, first-time buyers will continue to face challenges due to high demand and limited supply. By focusing on factors within their control, such as down payment amount, credit score, and flexibility, first-time buyers can enhance their chances of achieving homeownership.