The American dream is synonymous with two ideas. One of them is the idea that everyone in this country can find a path to economic success, regardless of the circumstances of their birth. The second idea is the symbolic encapsulation of the first idea: home ownership. Owning a home is the sign of economic success, but in recent years that milestone has become increasingly out of reach for first-time homebuyers.
Now that affordability has deteriorated, home buyers have become older and fewer home buyers are entering the housing market for the first time. Because homeowners’ children are more likely to be homeowners themselves, this pattern has profound implications for economic mobility for younger homebuyers like millennials and Gen-Zers, as well as for future generations. The The wealth gap between homeowners and renters is widening. If left unchecked, it could lead to a society in which economic success is increasingly determined by circumstances of birth rather than hard work and merit, undermining the essence of the American Dream.
Home buyers have become older and richer
Young people in particular are having a hard time on the housing market. According to a recent NAR study home buyers are older than before. The average buyer is now 56 years old, compared to 49 years old in 2023. The average first-time buyer in the housing market is 38 years old, three years more than in 2023 – a sharp increase compared to the 1980s, when the average first-time buyer housing market was in the late twenties.
This aging trend is accompanied by an increase in wealth among home buyers. Nowadays, one in three home purchases is made with… cashcompared to just one in four at the end of 2010. Existing homeowners, by tapping into their home equity, can make significant down payments, giving them a significant advantage over first-time buyers who need to borrow more at today’s higher interest rates.
First-time home buyers are faced with higher barriers than ever before
Affordability yes near record lows as mortgage payments for median-priced homes have reached historic highs. As home prices continue to rise out of reach, first-generation homebuyers trying to break into the market must rely on increases in income to boost their purchasing potential. However, the high-paying jobs tend to be in cities with the most expensive housing – places like Boston, New York, San Francisco, San Jose and Los Angeles, where less than 10% of listed housing is affordable to households earning the median income. This puts first-generation homebuyers in an impossible position where aspiring homebuyers must remain renters even longer to be financially able to purchase a home.
Although homebuyers are getting older and are increasingly paying cash, so are those taking on new mortgage debt younger buyers by racially diverse backgrounds. These young borrowers will reap the benefits of homeownership over time, but they pay more for that privilege and must sacrifice more, such as working longer hours or delaying expensive medical care.
Nearly 40% of homeowners surveyed by Redfin they admit wouldn’t be able to afford their current home if they did that waited until today to buy. It’s no surprise that the share of starters on the housing market has fallen to an all-time low of 24%, down from 32% last year and well below the pre-2008 standard of 40%.
The children of homeowners are more likely to own a home themselves
The divide between homeowners and renters isn’t just a reflection of the present; it is part of a generational cycle. Adult children of renters who want their children to have a better chance at achieving the American dream must figure out how to break into the housing market without family help. According to research by economists at the University of Chicagothere is a significantly greater chance that children of home-owning parents will become home owners themselves. And according to a study commissioned by Redfin, more than a third of home buyers under 30 years old planned to use a cash gift from a family member to cover their down payment.
To reverse these trends, we must increase homeownership or decouple it from the American Dream
The barriers facing first-time homebuyers are now higher than at any time in recent history. These barriers are especially formidable for people without family wealth or a legacy of homeownership. To reverse these trends, we must tackle the root causes of unaffordability. That means building starter homes, reforming zoning laws and creating routes for economic mobility that don’t rely so heavily on homeownership. As real estate professionals, we can empower first-time and younger homebuyers by providing education, advocating for affordable housing policies, taking advantage of existing programs for first-time homebuyers, and promoting equitable access to neighborhoods.
We must ensure that renters have the opportunity to live in their apartment buildings next to single-family homeowners. This way, renter households will have equal access to schools, jobs, and ultimately financial stability. The American Dream should be about opportunity – not just about the ability to own a home, but about the ability to build a safe and prosperous life, however one defines that.
Register today to attend Economic top in the field of housing in Dallas, on February 26, 2025 and hear Daryl Fairweather in person. The summit aims to give you a comprehensive understanding of the economic factors driving the housing market in 2025 – and what it all means for your business.
