First-time homebuyers in California are getting older, and it’s been good for housing market stability. According to Zillow, 33 percent of first-time buyers in California are over 40, and 16 percent are over 50. Nationally, the average age of the first-time buyer is just 34 years old. Is this significant?
There are actually some big differences between the traditionally young first-time buyer and this older (wiser?) first-time buyer we are seeing enter the housing market. Compared to younger buyers, older buyers are realistic about their expectations, have a better debt-to-income ratio, are less likely to need assistance with a down payment, and are easier to qualify for a loan. All of which has been reducing market volatility.
Not surprisingly, buyers who are over 40 years old have higher paying jobs and have had more time to pay off student loans. The increased income and decreased debt gives them a better debt-to-income ratio, or DTI. This is a number that lenders look at to decide how qualified a borrower is to get financing. When you have a low DTI, lenders will view you as a more stable loan applicant. That is why in the 2018 Zillow Consumer Housing Trends Report we see that the 40 and older group of buyers is far less concerned about qualifying for a mortgage.
In addition to having more saved up to purchase a house, the older group of first-time buyers are also more likely to purchase a home within their means. Only 20 percent of buyers over 40 years old go over budget, while nearly 30 percent of buyers under 40 spend more than originally intended.
In California, homebuyers are more likely to over-extend themselves because the housing costs have increased faster than incomes in recent years. For example, the average San Diego resident with a mortgage payment spends 38 perfect of their income on housing costs. Nationally, that average is only 18 percent. That is a huge difference and makes purchasing a home in California even more impactful on a person’s lifestyle and financial goals.
Another difference between younger and older buyers is what they want in a home. Buyers over 40 years old prefer rural and suburban areas, while younger homebuyer gravitate towards cities. The younger buyers want open floor plans, home office space, and to live somewhere with a convenient commute.
In the next 10 years, Los Angeles and Orange counties will see 2.08 million people turn 33 years old – the median age of a first-time homebuyer on the West Coast. That’s a 12.2 percent increase in people turning “of age” than over the last decade. With this growth common throughout most California regions, the state is expecting to see an influx of up to 276,000 more locals needing a home each year.
What’s holding millennials – ages 22 to 35 – back from buying a home now? The National Association of Realtors did a survey and found that 83 perfect of millennials have delayed homeownership because of student loans debt, higher rent prices, car loans and credit card debt. This leaves very little room for millennials to save money for a home or anything else. This has become a huge burden for younger buyers and is thought to be delaying home purchases up to 7 years. This largely explains why we are seeing such an increase of older buyers.
Ultimately, the desire to purchase a home is strong among millennials and Americans as a whole. With enough research and knowledge about the market, purchasing a home for the first-time is possible at any age. It often comes down to how well informed the buyer is and the team they hire for help. Follow the market, know what is affordable for your current budget, and hire trustworthy professionals to work for you and give you the best advice. Even if you plan to wait a year or more to purchase, it will benefit you to talk with a expert and come up with a plan now.
This article is intended to be accurate, but the information is not guaranteed. Please reach out to us directly if you have any specific real estate or mortgage questions or would like help from a local professional.