Older first-time homebuyers have more savings, less income

When you think of a typical first-time homebuyer, you likely imagine an early professional or young family. But first-time homebuyers are increasingly older, further into their life journeys. What are the differences between yesterday’s typical first-time homebuyer and today’s older first-time homebuyers?

While the average first-time homebuyer is 34 years old nationally, 33% of first-time homebuyers are over 40, and 16% are over 50, according to Zillow.

Compared to younger first-time homebuyers, first-time homebuyers who are 40 and older tend to:

have lower incomes, averaging $57,500 compared to $72,500 for those younger than 40;
prefer rural and suburban homes, while younger homebuyers are more likely to prefer the city; and
more likely to use their savings for their down payment and less likely to rely on down payment gifts than their younger counterparts.

Today’s first-time homebuyers are better for housing market stability

Even though older first-time homebuyers tend to have lower incomes than younger homebuyers, their overall financial situations tend to make them more stable.

For example, just 20% of first-time homebuyers over 40 go over budget on their home purchase, while 27% of younger first-time homebuyers spend more than they originally intend to. Members of the older demographic report being less concerned about qualifying for a mortgage. Further, their mortgage applications are statistically less likely to be rejected.

Therefore, as the average age of first-time homebuyers rises, the overall trend is toward more qualified, financially stable buyers. This is good news for the long-term health of the housing market, a situation that needs particular attention in California.

Here in California, homebuyers are more likely to over-extend themselves as housing costs have increased much faster than incomes in recent years.

For example, the average resident who has a median mortgage payment spends:

54% of the average household income in San Jose;
45% in Los Angeles;
45% in San Francisco; and
38% in San Diego, according to Zillow.

In contrast, the national average income spent on a median mortgage payment is just 18%.

A homebuyer who spends more than the recommended percent of their income on housing is less likely to be able to save and more likely to default if they lose their job or have to face unexpected expenses. But as home prices increased rapidly from 2012 through late-2018, homebuyers have kept the same frantic pace. Since income raises have fallen far below home price movement, this imbalance means many homebuyers have taken on significant financial stress to keep up.

The good news: as older first-time homebuyers who are more advanced in their careers and have had longer to build up their savings continue to make up a significant portion of first-time homebuyers, California’s housing market will see a return to healthier buying and borrowing conditions. This gradual return to normalcy will continue for the next several years at least, as the current generation of typical first-time homebuyers who came of age during the 2008 Great Recession was delayed in their entry to the job force and homeownership, a setback that continues to have implications today.

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