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The share of first-time homebuyers remains at a near-record low of 22% as a housing shortage and high prices sideline many, according to a new report by the National Association of Realtors. However, those who are managing to buy are older and wealthier than in the past, with 1 in 10 paying all cash—a record high since data collection began in 2003.
The Role of Generational Wealth
“Inheritances are really driving this,” said Jessica Lautz, deputy chief economist at the NAR. First-time buyers who paid all cash were more likely than those who financed a house to use an inheritance at 28% or proceeds from the sale of an inherited property at 21%. These all-cash buyers were also older, with a median age of 54, compared to 38 for those who financed a purchase. “They waited a significant period of time for that generational transfer of wealth to come through,” Lautz said.
For first-time buyers overall, personal savings remained the biggest source of funding for a down payment. In another shift, more people used assets such as a 401(k), stocks, or cryptocurrency than financial help from family or friends. Lautz noted that older buyers have had more time to save up, while adding, “I think it’s uncomfortable to ask mom and dad for a gift or loan when you’re hitting 40 versus your young 30s.” The NAR report noted that the share of first-time buyers using an inheritance is likely to grow as baby boomers reach their 80s and beyond, creating a growing divide between independent savers priced out of homeownership and those waiting on a generational transfer of wealth.
Real Estate Market Impact
Real estate agents across the country are witnessing this shift firsthand. Jason Miller, a broker with Trust Real Estate Company in St. Cloud, Minn., stated that during the first 15 years of his career, he saw virtually zero first-time buyers paying all cash, but has encountered a number of them since the COVID-19 pandemic. “They knew they had to absolutely have the most sterling offer possible to compete in the competitive marketplace,” he said.
High mortgage rates are also driving all-cash bids because they make financing a home for 30 years far more expensive, according to Miller. Furthermore, families are not always waiting until death to pass on wealth. Miller observes more clients receiving assistance from family members who have paid off their own homes or have equity in a second property they can sell, gifting some or all of that money as a “future inheritance.” Nate Johnson, a broker associate with RedKey Realty Leaders in St. Louis, explained that relatives may also lend cash temporarily to make a bid more attractive in intensely competitive local markets. “They just know that if we’re looking at five or six offers on the table, let’s call it 10 offers on the table, which is not uncommon…maybe three of those offers will be all cash,” Johnson said, noting he has seen buyers refinance into a mortgage after closing to pay back family members.
The Struggle for Middle-Income Buyers
The rise of all-cash offers makes the market even more difficult for individuals who struggle to save up for a down payment amidst sky-high home prices. Seth Daphne Esmeson, who lives in Seattle and is turning 33 soon, and their spouse have good jobs but carry debt, including student loans and a car payment. Esmeson believes they may never be in a position to buy and has decided homeownership does not make sense at current prices.
“Being that debt burdened, and also having to fix things on your home, like, it sounds really terrible,” Esmeson said, adding they are not convinced home equity would outpace other investments and prefer to stick with their current rental and landlord. Esmeson expressed frustration that the housing market worked better for previous generations, stating, “We have the short end of the deal,” and “the gap is expanding.” Esmeson concluded that the only likely way they could ever buy a home is “If I received an inheritance,” adding, “I love my mom dearly and I don’t want to look forward to that, or really want to strategize around that.”
