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

*
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

*
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

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.

To
contact
the
editor
responsible
for
this
piece:



[email protected]

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