Against a backdrop of rising mortgage rates and soaring house prices, the outlook for first-time home buyers (FTBs) in 2023 is daunting. The average FTB faces a significant financial burden, with monthly principal and interest (P&I) payments more than doubling since 2013 ($2,110 vs $980). Relying on a 54% increase in household income while allocating a higher proportion of income (24% instead of 17%) to P&I insurance. This means FTBs have higher credit risk and less staying power to withstand the trials and tribulations of daily life. It also limits households’ ability to make discretionary spending and saving decisions. Government agencies have been raising debt-to-income (DTI) thresholds for years, resulting in rising debt burdens. This does not bode well for many FTBs, who may be strapped for cash in the event of an emergency or job interruption. Especially for the most cash-strapped FTBs, the total DTI ratio for an FHA loan can be as high as 57%. .
Despite the challenges, FTB’s share of institutional home purchase loans surged to its highest level since 2013, with the share from different demographic groups also rising significantly. In 2023, FTBs accounted for 56.3% of institutional lending, with people of color accounting for 35%, a significant increase from 26% in 2013.
Who is the average FTB in 2023?
In 2023, the average institutional first-time homebuyer (FTB) paid $406,000 for a home with approximately 1,800 square feet of gross living area (GLA) and monthly principal and interest (P&I) payments of approximately $2,110, or approximately is 24% of income. He or she is approximately 38 years old, has a credit score of 722, a median down payment of 5% ($13,000), and an annual income of $116,000. FTBs are approximately 9 years younger than repeat buyers (RBs), which is reflected in lower average income and weaker underwriting. On average, they are also more diverse and more representative of the country’s overall population makeup.
Table 1. Average number of first-time homebuyers and repeat homebuyers in 2023
| first time home buyers | Repeat home buyers | |
| credit score | Chapter 722 | Chapter 748 |
| % down payment* | 5% | 20% |
| income | $116,000 | $160,000 |
| age** | 38 | 47 |
| % people of color | 35% | 25% |
| Housing Prices | $406,000 | $493,000 |
| House area (square feet) | 1,800 | 2,000 |
| mortgage rates | 6.6% | 6.6% |
| monthly protection and indemnity payment | $2,110 USD | $2,240 USD |
| % of monthly income | twenty four% | 20% |
* While all other metrics are shown as average, down payment is shown as median.
** HMDA data provides information on the age range of borrowers (e.g. 25-34 years old). We estimate the average age of FTB and RB by assuming that their ages fall at the midpoint of this range.
Note: People of color are defined as blacks, non-Hispanic whites, Native Americans, and Asians.
Sources: HMDA, public records, agency MBS data and AEI Housing Center.
FTB faces significant hurdles as its average monthly insurance payment surges 116%, jumping from $980 in 2013 to $2,110 in 2023.
- Mortgage rates climbed 2.6 percentage points, from 4.0% in 2013 to 6.6% in 2023.
- The cost of an FTB home soared 72%, from $233,000 in 2013 to $406,000 in 2023.
As shown in Figure 1, the combination of revenue growth and P&I debt expansion allowed FTB to recoup an additional $1,130 in P&I payments. The 54% revenue increase increases the typical FTB monthly payment by $530, and 7 percentage points. The increase in P&I to revenue ratio adds an additional $600. To further examine the changes caused by rising home prices, the FTB median home price to revenue ratio increased from 3.1 in 2013 to 3.5 in 2023.
Figure 1 Contributors to changes in principal and interest payments from 2013 to 2023
Source: AEI Housing Center.
The average size of an FTB home dropped about 10%, from 2,000 square feet in 2013 to 1,800 square feet in 2023, while the average Walk Score of homes purchased fell from 31 to 28. Down payments or income also reflect higher demand for FTBs compared to a decade ago. For example:
- The average FTB credit score increased from 717 points in 2013 to 722 points in 2023, an increase of 5 points.
- While the median down payment has held steady at 5% between 2013 and 2023, due to significant home price increases, buying a home requires saving $84 more ($13,000 instead of $7,000 in 2013).
- FTB’s average income increased from 109% of the area’s median income in 2013 to 116% in 2023.
Table 2. Average statistics for first-time homebuyers: 2023 vs. 2013
| first time home buyers | |||
| 2023 | year 2013 | Changes (2013-2023) | |
| credit score | Chapter 722 | Chapter 717 | 13 points |
| % down payment* | 5% | 5% | 0 percentage points. |
| down payment* | $13,000 | $7,000 | 84% |
| debt to income ratio | 41% | 36% | 5 percentage points. |
| income | $116,000 | $75,000 | 54% |
| Income as a percentage of area median | 116% | 109% | 6 percentage points. |
| Housing Prices | $406,000 | $233,000 | 74% |
| House area (square feet) | 1,800 | 2,000 | -200 |
| mortgage rates | 6.6% | 4.0% | 2.6 percentage points. |
| monthly protection and indemnity payment | $2,110 USD | $980 | 116% |
| % of monthly income | twenty four% | 17% | 7 percentage points. |
| Redfin® Walk Score | 28 | 31 | -2 minutes |
* While all other metrics are shown as average, down payment is shown as median.
Note: Numbers in the table may not add across rows due to rounding.
Sources: Public records, HMDA, agency MBS data and AEI Housing Center.
Despite resistance, institutional FTB has become more diverse.
The FTB share of people of color has increased from 26% in 2013 to 35% in 2023, which is slightly higher than the increase in the RB share of people of color during the same period. All racial and ethnic groups made gains relative to non-Hispanic whites.
Figure 2. Proportion of first-time and repeat color purchases: by year
Note: People of color are defined as blacks, non-Hispanic whites, Native Americans, and Asians.
Source: HMDA, agency MBS data and AEI Housing Centre.
Table 3. Proportion of first-time and repeat color purchases: by group
| first time home buyers | Repeat home buyers | ||||
| 2023 | year 2013 | 2023 | year 2013 | ||
| non-Hispanic whites | 65% | 74% | 75% | 83% | |
| Black | 10% | 6% | 6% | 3% | |
| Hispanic | 14% | 11% | 10% | 6% | |
| Asian | 11% | 8% | 9% | 7% | |
| native american | 1% | 0% | 1% | 0% | |
Source: HMDA, agency MBS data and AEI Housing Centre.
Edward Pinto is Senior Fellow and Director of the AEI Center for Housing.
This column does not necessarily reflect the opinions of the HousingWire editorial staff and its owners.
To contact the editor responsible for this article: [email protected]
