You might be asking: if I don’t own a home by the time I’m 30 am I totally failing at life? We feel you, and no.
As of 2023, the average age of first-time homebuyers is 35. It’s dipped slightly from 36 in 2022, but don’t let that fool you—this age is creeping up. Back in 1981, first-time buyers were typically 29. By 1991, it hit a low of 28, but we’ve been on an upward trend since.
And, depending on your state or city, the “normal age” to buy a home might look very different—in Austin Texas, Tallahassee Florida, and Lansing Michigan, the average first-time homebuyer age aligns closely with the national average, around 34-35 years. In Sacramento California or Hartford Connecticut, where homes are a lot more expensive, the median age is higher, often in the mid-30s to early 40s.
The rising age reflects a broader shift in the market and the economy. Housing prices have gone up, making it harder for younger Americans to have enough savings to step into the real estate wealth building ladder of home ownership.
Knowing how much home you can afford is the secret sauce—it gives you the inside scoop on whether you’re ready to snag a home you’ve been eyeing or if you need to boost your savings to get more buying power. It’s all about staying ahead of the game and making smarter moves in the market.
Why are prices climbing so fast?
Home values have rocketed up 162% since 2000, while incomes have only inched up 78%. That’s right—house prices have surged about twice as fast as incomes since 1985 and 2.1 times faster since 2000. If home prices had kept pace with income, the median U.S. home would be around $294,000, not the eye-watering $433,100 we’re seeing now.
What’s the price-to-income ratio telling us?
The average house-price-to-income ratio is now a whopping 5.8 nationwide. That’s more than double the recommended ratio of 2.6. To afford that median-priced home of $433,100, you’d need an annual income of about $166,600. But the median household income is only $74,580—barely half of what’s needed.
Here’s a graph from FRED (Federal Reserve Economic Data). The blue line shows the rising cost of housing, while the green line represents the slower growth in median household income.
What’s up with income trends?
Median household income for homebuyers jumped from $88,000 to $107,000 in the past year. That’s a solid 20% increase, but it’s still not enough to counterbalance skyrocketing home prices and mortgage rates.
Even with this income boost, many buyers are still struggling with affordability because home prices have outpaced income growth. This disparity continues to put the squeeze on first-time buyers trying to get their foot in the door.
How do things stack up in different areas?
There are major regional disparities. In San Francisco, for example, home prices have surged 531% from the 1960s to the last decade, whereas Pittsburgh has seen less aggressive growth from the 1960s to 21st century at a 64% increase.
Should I buy a house before I’m 40?
If you can buy a home when you’re 25, do it. By the time you’re 40—definitely. Waiting to buy a home until after age 35 can hit you hard financially in the long run. Those who buy later tend to end up with significantly less housing wealth by their sixties compared to early buyers. Delayed homeownership can lead to a thinner financial cushion and less wealth accumulation, making it harder to retire and handle major life expenses down the road like elder care and college for the kids.
Of course, younger Americans are basically hanging out in the city way longer than before. Why? Because who wouldn’t want to live that fast-paced, super-cool city life with all the career perks, even if the rent’s ridiculous? Like, forget rushing to the boring suburbs and popping out kids. It’s no wonder home buying is happening later.
What can you do to buy a house sooner?
Here’s the game plan:
- Know what you can afford. Here’s a calculator to make it easy.
- Boost Savings: Save aggressively for a down payment (about 6% of the home value, all in, to cover down payment and closing costs). Plus, you’ll need emergency funds—but that could come out of a 401k in a pinch.
- Upgrade Your Credit: A higher credit score means better mortgage rates, generally. But it’s honestly not a deal breaker to have good credit vs. “excellent” credit. Just get it north of 580 and you’re in good shape. (You’ve got a lifetime to make it better.)
- Seek Assistance: Look for first-time homebuyer programs and grants.
- Get Expert Help: Work with a savvy lender like us at Tomo Mortgage, to get the lowest interest rates possible, to reduce your costs.
Navigating this market isn’t easy, but understanding these trends and preparing strategically can give you a leg up. It’s worth noting that first-time buyers made up 32% of all buyers in 2023, up from 26% in 2022, so things might be slowly swinging in your favor. Plus, upcoming presidential elections could influence additional resources for first-time buyers.
If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.