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Home Price Gains Sink First-Time Buyer Affordability

first-time homebuyers affordability

The breakneck pace of home price gains made it tough to be a first-time property buyer in the third quarter, according to data from the National Association of Realtors.

The typical first-time buyer had 99.2% of the income they needed to purchase a home in the July through September period, according to NAR’s First-Time Homebuyer Affordability Index. That was the lowest since 2018 when mortgage rates were above 4%, the trade group said.

The median price for a starter home was $309,100 in the third quarter, up 16% from a year earlier, according to the NAR data. The average rate for a 30-year fixed mortgage was 2.92% in the period, compared with 3.01% a year earlier.

Assuming a 10% down payment, the average mortgage payment was $1,199 a month in the third quarter and the median household income of a first-time buyer was $57,118 a year, according to the index data. That compares with a $1,045 payment and an annual median income of $55,475 a year earlier.

Home prices have surged during the pandemic as a Federal Reserve bond-buying program made borrowing costs more affordable. The average U.S. rate for a 30-year fixed mortgage fell to an all-time low of 2.65% in 2021’s first week because of the Fed’s efforts to support the economy during the Covid-19 crisis.

Even as property prices increased at a record pace, the cheaper borrowing helped more families to qualify for a mortgage. The Fed announced last month that it would pare its bond purchases to keep the economy from overheating, causing mortgage rates to increase.

The average U.S. rate for a 30-year fixed home loan was 3.07% in October, compared with 2.9% in September, according to Freddie Mac.

That didn’t put a dent in the pace of home sales. Sales of previously owned homes rose 0.8% in October to 6.34 million at a seasonally adjusted and annualized pace, the highest level since January, NAR said in a Nov. 22 report.

"Home sales remain resilient, despite low inventory and increasing affordability challenges," said Lawrence Yun, NAR's chief economist.

October’s share of first-time buyers was 29% of sales, higher than September’s 28%, according to NAR data. In October 2020, 32% of sales were from first-time buyers, NAR said.

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