First-time Homebuyers Hit Financial Burden in Monthly Housing Costs

While home prices continue to rise, many buyers—especially first-time homebuyers—are experiencing the financial burden of rising costs. 

Housing Affordability

Along with the increase in home purchase prices, buyers are faced with higher mortgage rates, which dramatically increase monthly housing payments. This has taken a toll on housing affordability. 

Although higher rates and purchase prices have allowed inventory to increase, buyers remain active, especially in markets with attractive price points. And recent declines in mortgage rates may bring more back to the market. 

Home prices have increased at a pace that far exceeds wage gains, especially for low- and middle-income workers. Overall, the national price deceleration inevitably followed the softening sales, providing well-positioned prospective buyers a small measure of welcomed relief. The recent dips in mortgage rates will bring additional buyers to market, especially in those places where home prices are still relatively affordable and where jobs are being added.

Lawrence Yun

NAR Chief Economist

Financial Burden for First-Time Homebuyers

The National Association of REALTORS®’ second quarter report discussed how growing unaffordability has impacted first-time homebuyers.

For a typical home valued at $351,500 with a 10% down payment loan, the mortgage payment rose to $1,810. This is an increase of $433 (31%) from quarter one and $597 (49%) from a year ago. This increased payment has put buyers in a vulnerable spot. 

Housing costs are considered burdensome if they rise above 30% of total household income. Yet, many first-time buyers are spending over 36% of their household income on their mortgage payments (principal and interest). 

Add in additional monthly expenses like property taxes, home insurance, and mortgage insurance, and the payment escalates more. 

In addition, buyers need a bigger cash reserve for a down payment. Homebuyers needed a minimum of $100,000 for a 10% down payment in 53 markets in the second quarter. In the first quarter of 2022, that was true for only 27 markets. Typical down payments (at 10%) were less than $50,000 in just 23 markets in Q2, down from 63 markets the previous quarter. 

Break Down Finances with Your Buyers

Not all first-time buyers know they should keep their housing costs to less than 30% of their income—which is part of the reason so many have stretched their budgets so thin. 

Be sure to discuss the numbers with each client as you guide buyers to a price point that won’t strain them financially.