First-time homebuyers remain scarce, but a record share of them pay all cash

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The share of first-time homebuyers remains at a near-record low of 22% as a housing shortage and high prices sideline many, according to a new report by the National Association of Realtors. But those who are managing to buy are older and wealthier than in the past, and 1 in 10 paid all cash, a record high since such data was collected starting in 2003.

"Inheritances are really driving this," said Jessica Lautz, deputy chief economist at the NAR.

First-time buyers who paid all-cash were more likely than those who financed a house to use an inheritance (28%) or proceeds from the sale of an inherited property (21%). They were also older.

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NAR finds the median age of all first-time buyers remains at 40, a record high. For first-time buyers who financed a purchase it was 38, while for those who paid all-cash it was 54. "They waited a significant period of time for that generational transfer of wealth to come through," Lautz said.

For first-time buyers overall, personal savings was the biggest source of funding for a down payment. But in another shift, more people used assets – like a 401(k), stocks, or cryptocurrency – than financial help from family or friends. Older buyers have had more time to save up, Lautz said, but she thinks there's another factor: "I think it's uncomfortable to ask mom and dad for a gift or loan when you're hitting 40 versus your young 30s."

The share of first time buyers using an inheritance is likely to grow in coming years as boomers reach their 80's and beyond. As the report noted, "there is a growing divide among those who are saving independently and priced out of homeownership, versus those who are waiting on the sidelines but then given a generational transfer of wealth."

Real estate agents around the country are seeing the change.

"I would say in the first 15 years of my career, I saw virtually zero first-time home buyers paying all cash," said Jason Miller, a broker with Trust Real Estate Company in St. Cloud, Minn.

But he's had a number of them since the COVID-19 pandemic, when homebuying surged. "They knew they had to absolutely have the most sterling offer possible to compete in the competitive marketplace," he said.

High mortgage rates are also driving all-cash bids, Miller said, since they make it far more expensive to finance a home for 30 years. And not all families wait until death to pass on wealth. Miller sees more clients getting help from family members who may have paid off their own home, or have equity in a second property they can sell and "are gifting some or all of that money." They're viewing it as a kind of "future inheritance," he said.

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For some younger first-time buyers, relatives may only be "lending them the cash" to make a bid more attractive, said Nate Johnson, a broker associate with RedKey Realty Leaders in St. Louis. Even with much of the national housing market in a major slump, he said his local market is still intensely competitive for buyers.

"They just know that if we're looking at five or six offers on the table, let's call it 10 offers on the table, which is not uncommon…maybe three of those offers will be all cash," he said.

After closing on a property, Johnson has seen some buyers refinance into a mortgage and pay back their family member.

The rise of all-cash offers makes the market even tougher for those who struggle to save up for a down payment with today's sky-high home prices.

"For a long time I thought I wanted to buy a house," said Seth Daphne Esmeson, who lives in Seattle and will soon turn 33. They and their spouse have good jobs, but also debt, including a car payment and student loans. Not only does Esmeson think they may never be in a position to buy, they've also decided it does not make sense at today's prices.

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"Being that debt burdened, and also having to fix things on your home, like, it sounds really terrible," they said.

Esmeson is also not convinced that home equity would outpace other investments. They like their current rental and landlord so are sticking with it for now.

Still, it's frustrating that the housing market worked better for previous generations. "We have the short end of the deal," they said, and "the gap is expanding."

There's probably only one way they might ever be able to buy. "If I received an inheritance," they said. But "I love my mom dearly and I don't want to look forward to that, or really want to strategize around that."