Given a backdrop of escalating mortgage rates and soaring home prices, the prospect for first-time homebuyers (FTBs) in 2023 was daunting. The average FTB faced a significant financial burden, with monthly principal and interest (P&I) payments more than doubling ($2,110 vs $980) since 2013. To mitigate this significantly larger payment, the average FTB relied equally on a 54% increase in household income, while allocating a higher proportion (24% instead of 17%) of their income to P&I. This translates into higher FTB credit risk and less staying power against the trials and tribulations of everyday life. It also limits a household’s ability to make discretionary spending and saving decisions. This rising debt burden has been enabled by government agencies extending debt-to-income (DTI) thresholds over years. This does not bode well for many FTBs, who may become cash-strapped in case of emergency or job interruption, particularly for the most constrained FTBs, for whom the total DTI ratio with an FHA loan can be as high as 57%.
Despite challenges, the proportion of FTBs among agency home purchase loans surged to its highest level since 2013, accompanied by a notable rise in representation from diverse demographics. In 2023, FTBs commanded a noteworthy 56.3% share of agency loans, with individuals of color representing a substantial 35%—a significant increase from 26% in 2013.
Who is the average FTB in 2023?
The average agency first-time buyer (FTB) in 2023 purchased a home for $406,000 with about 1,800 sq. ft. of gross living area (GLA) and spent about $2,110 on his or her monthly principal and interest (P&I) payment – or about 24% of income. He or she was about 38 years old and had a credit score of 722, a median down payment of 5% ($13,000), and an annual income of $116,000. FTBs are about 9 years younger than repeat buyers (RBs), which is reflected in lower average incomes and weaker underwriting profiles. They are, on average, also more diverse and more representative of the country’s overall demographic make-up.
Table 1. The average first-time homebuyer and repeat homebuyer in 2023
| First-time Homebuyer | Repeat Homebuyer | |
| Credit score | 722 | 748 |
| % Down payment* | 5% | 20% |
| Income | $116,000 | $160,000 |
| Age** | 38 | 47 |
| % People of color | 35% | 25% |
| Home Price | $406,000 | $493,000 |
| Home Size (in sq. ft.) | 1,800 | 2,000 |
| Mortgage Rate | 6.6% | 6.6% |
| Monthly P&I payment | $2,110 | $2,240 |
| As a % of monthly income | 24% | 20% |
* While all other metrics are shown as averages, down payment is shown as the median.
** HMDA data provide information on the borrower’s age range (e.g. 25-34). We estimate the average age for FTBs and RBs by assuming their age falls at the midpoint of that range.
Note: People of color are defined as Blacks, Non-Hispanics whites, Native Americans, and Asians.
Source: HMDA, Public Records, Agency MBS data, and AEI Housing Center.
FTBs faced a significant hurdle as their average monthly P&I payments skyrocketed by 116%, jumping from $980 in 2013 to $2,110 in 2023. This surge was fueled primarily by a combination of two factors:
- Mortgage interest rates climbed 2.6 ppts., reaching 6.6% in 2023 from 4.0% in 2013, and
- The cost of a FTB home surged 72%, reaching $406,000 in 2023 from $233,000 in 2013.
As illustrated in Figure 1, the combination of income growth and P&I debt expansion allowed FTBs to compensate for the additional $1,130 in P&I payment. The 54% increase in income allowed the typical FTB to add an extra $530 to their monthly payment, while the 7 ppts. increase in the P&I-to-income ratio added an additional $600. To put the change wrought by burgeoning home prices in further perspective, the ratio of FTB median home price-to-income increased from 3.1 in 2013 to 3.5 in 2023.
Figure 1. Contributors to the change in the Principal and Interest payment from 2013 to 2023
Source: AEI Housing Center.
The average FTB home size declined by about 10%, from 2,000 sq. ft. in 2013 to 1,800 sq. ft. in 2023, while the average Walk Score of the homes purchased decreased from 31 to 28. Other core underwriting metrics such as credit score, down payment, or income also reflect the heightened demands on FTBs compared to a decade ago. For instance:
- The average credit score of FTBs increased 5 points from 717 in 2013 to 722 in 2023.
- While the median down payment remained steady at 5% between 2013 and 2023, buying a home required 84 more in savings ($13,000 rather than $7,000 in 2013) due to significantly higher home prices.
- The average income of FTBs increased from 109% of the area median income in 2013 to 116% in 2023. While this is an unwelcome trend, it is a modest increase, given the headwinds.
Table 2. Average statistics for first-time homebuyer: 2023 vs. 2013
| First-time Homebuyer | |||
| 2023 | 2013 | Change (2013-2023) | |
| Credit score | 722 | 717 | 13 points |
| % Down payment* | 5% | 5% | 0 ppts. |
| Down payment* | $13,000 | $7,000 | 84% |
| Debt-to-income ratio | 41% | 36% | 5 ppts. |
| Income | $116,000 | $75,000 | 54% |
| Income as a % of Area Median | 116% | 109% | 6 ppts. |
| Home Price | $406,000 | $233,000 | 74% |
| Home Size (in sq. ft.) | 1,800 | 2,000 | -200 |
| Mortgage Rate | 6.6% | 4.0% | 2.6 ppts. |
| Monthly P&I payment | $2,110 | $980 | 116% |
| as a % of monthly income | 24% | 17% | 7 ppts. |
| Redfin® Walk Score | 28 | 31 | -2 points |
* While all other metrics are shown as averages, down payment is shown as the median.
Note: Due to rounding, numbers in the table may not add up across rows.
Source: Public Records, HMDA, Agency MBS data, and AEI Housing Center.
Despite the headwinds, agency FTBs are becoming much more diverse.
The share of FTBs of color has increased from 26% in 2013 to 35% in 2023, slightly outpacing the increase in the share of RBs of color over the same period. All racial and ethnic groups made gains relative to non-Hispanic whites.
Figure 2. Share of first-time and repeat buyers of color: by year
Note: People of color are defined as Blacks, non-Hispanics Whites, Native Americans, and Asians.
Source: HMDA, Agency MBS data, and AEI Housing Center.
Table 3. Share of first-time and repeat buyers of color: by group
| First-time Homebuyer | Repeat Homebuyer | ||||
| 2023 | 2013 | 2023 | 2013 | ||
| Non-Hispanic White | 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 Center.
Edward Pinto is a Senior fellow and Director at AEI Housing Center.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
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