The housing market is slowing down for first-time home buyers. According to the National Association of Realtors (NAR), the first-time home buyers only accounted for 24% of all homes purchased between July 2023 – June 2024.  That’s down from 32% in 2023.

Increased Costs

First-time home buyers face several headwinds. The list includes “high home prices, high mortgage interest rates and limited inventory,” said Jessica Lautz, NAR deputy chief economic and vice president of research.

Other costs are a barrier for young buyers, too – like increased taxes and homeowner’s insurances. In 2024, “the average annual homeowner insurance premium grew by 14 percent,” according to a report from the Joint Center for Housing Studies of Harvard University.

Seth Elliot, a mortgage loan originator at Notre Dame Federal Credit Union, told Drew Mariani these higher costs mean buyers need a higher annual income order to afford a home. In many states, that number is over six figures.

According to the Harvard report, the average family would need to make $126,700 to afford the median-priced home ($412,500). That’s up from an annual income of $79,300 in 2021.

Is Renting a Better Option?

For many Gen Z Americans, renting is a better option. According to a survey from Entrada, 72% of those surveyed thought renting was a better financial approach than homeowning.  That does not mean, however, that Gen Z has given up on the American dream. Most of those surveyed (75%), saw renting as a stepping-stone before homeownership.

Resources and Policy-Oriented Solutions

Many states, including Illinois, help first time buyers afford a home. The Prairie State offers down payment assistance in the form of forgivable, deferred, and repayable loans.

Local governments can play a role in bringing prices down, like increasing supply side demand.  According to the Harvard report, “Austin enabled higher-density housing construction by reducing minimum lot sizes for single-family homes.”

Manufactured homes can be a more affordable solution for perspective homebuyers. Such homes can “reduce costs by as much as 65 percent compared to equivalent site-built homes,” according to the Harvard report.