The share of first-time home buyers in the US fell to 24 percent in 2024, a record low down from 32 percent in 2023. America is coming off its worst housing market in 30 years, and there are few signs that it is doing anything other than continuing to slow down. There are a confluence of factors that are all pushing this in one direction, and it’s away from first-time homebuyers.
First, with home prices at all-time highs, that means that existing homeowners have a bigger asset they’re less willing to give up, especially those who have paid off their mortgage. Goldman Sachs recently published a note highlighting how the share of homeowners without a mortgage rose from 33 percent in 2010 to 40 percent in 2023, demonstrating how the focus for homeowners has been to pay off their loans to own their home outright. This gives people a source of equity they can tap into, further freezing new home buyers out of the market.
Next is the problem of high interest rates. Even existing homeowners who want to sell their home are hesitant to ditch their interest rate in the vicinity of two to three percent for the current six percent and higher rates on the market. We are in a new inflationary world now, and despite Trump’s desire for the Fed to lower interest rates, the Fed Funds Rate is not what determines mortgage rates, long-term treasury yields do. And they’re elevated because of the GOP’s bill that will blow out the deficit and the uncertainty Trump creates in chasing investors away from the long end of the yield curve. It’s very hard to see how mortgage rates meaningfully come down as long as president deals is creating a hurricane of uncertainty for the global economy.
Combining with higher interest rates to make buying a house less affordable are rising insurance premiums. We are rapidly spiraling towards a world where home ownership in some regions of the country under climate risk is simply not possible for most people due to an inability to get home insurance, something required to obtain a mortgage. This isn’t just some blogger with a finance degree saying it, Jerome Powell, Chairman of the Federal Reserve said earlier this year that “If you fast-forward ten or fifteen years, there are going to be regions of the country where you can’t get a mortgage.” Those regions are rapidly becoming more expensive as they become more onerous to insure under the weight of climate change’s impacts, and this dynamic will only spread to more parts of the country as our climate crisis continues to spiral.
And the last big force pushing housing prices up is tied to the first, in that there has been a historic shortage of houses on the market both due to a lack of building new housing and existing housing being less available because of inflated asset prices and interest rates. There is some relief on this front, as new waves of housing stock are beginning to hit the market, with inventory up 29 percent in June from last year. This has led to one-third of markets now seeing declining housing prices in recent months.
It’s possible we will look back at 2025 as the bottom for this anemic housing market spanning multiple years, as the supply shock begins to abate as more houses get built. But long-term interest rates are going to remain stubbornly high as long as the American government creates serious duration risk for investors, and the price and availability of home insurance is becoming more tied more to climate change dynamics than anything in the realm of economics. America’s housing market is not in great shape, and every year it becomes more difficult for first-time home buyers to enter it.
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