First-time homebuyers in California have faced a challenging housing market from 2018 through 2023.
During this period, home prices reached record highs while the number of first-time buyers fell to record lows.
High costs have particularly kept many younger households from buying their first home.
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In fact, only 34% of potential first-time buyers could afford an entry-level home in 2023.
Despite these challenges, there were signs of improvement by 2023.
Who Are Californias First-Time Homebuyers?
In 2018, it was not uncommon for first-time buyers to be around 3032 years old.
But by 2022, the median age reached 36 the highest ever recorded.
Many have delayed homeownership due to extended schooling, student debt, or the high cost of living.
This huge increase indicates that only higher-earning households were able to buy homes as prices and interest rates climbed.
In Californias pricey markets, the income needed to buy is even greater often well into six figures.
First-timers in California reflect this pattern many are young couples combining incomes to afford a home.
Notably, single women purchase homes at twice the rate of single men, even among first-timers.
Homeownership Challenges
The steep hurdles facing young Californians help explain these demographics.
California has the second-lowest homeownership rate in the U.S. (about 5556%), trailing only New York.
Despite these obstacles, owning a home remains a strong aspiration.
What Kinds of Homes Are First-Time Buyers Purchasing?
Nationally, about 75% of recent homebuyers bought detached single-family houses.
These homes often have two or three bedrooms and are less than 1,500 square feet cozy by California standards.
Buying a single-family home often means upsizing in space for those coming from a tiny apartment.
Condos and townhomes are typically less costly than detached houses in the same area.
Since brand-new houses are typically luxury-priced in California, entry-level buyers look to the resale market.
Its common for first-timers to buy houses built in the 1950s-1980s that may need some cosmetic updating.
Some ambitious first-timers intentionally buy fixer-upper homes houses in need of significant renovation because they are priced lower.
In 2009, roughly 55% of first-time buyers nationally used FHA loans.
In 2018, a typical 30-year fixed mortgage rate was around 45%.
Many first-timers rushed to buy in 20202021 to take advantage of 3% mortgage rates.
By October 2023, rates hit roughly 7.6% for a 30-year loan, the highest in decades.
For first-time buyers, this jump was a game changer.
Higher interest rates dramatically increase the monthly payment on a given loan amount.
In Californias pricey market, a traditional 20% down payment can be enormous often $100,000 or more.
Few first-time buyers manage to put 20% down.
Thus, most first-timers use much smaller down payments.
Many loans are available with 3-5% down, and these have become standard for young buyers.
Down payment assistance programs have also played a role.
Many first-time buyers also receive financial assistance from family the so-called Bank of Mom and Dad.
is one of the most expensive housing markets in the nation.
Here, first-time buyers face sky-high home prices.
First-time buyers here are often tech workers with high incomes or folks receiving family help.
Many buy condos or TICs (tenancy-in-common units) as a more affordable entry point.
In early 2023, median home prices were around $835,000 in Los Angeles and Orange counties.
First-time buyers in LA often look toward condos or smaller single-family homes in outlying neighborhoods.
LA is a sprawling region, and affordability varies by area.
This helped push the first-time buyer share to around 50% of purchases in 2010, an all-time high.
In 2022 the market didnt crash but sales slowed due to interest rates.
This was unusual historically the share is about 38%.
After 2010, the first-timer share fell below normal.
The record low 26% in 2022 is the mirror image of the record high ~50% in 2010.
In 2023 it ticked back up to the low-30s.
So essentially, first-time buyers went from unusually important in 20092010 to unusually scarce in 20212022.
Looking ahead, the demand from millennials and Gen Z entering their homebuying years is expected to remain strong.
