Tight Credit Squeezes Older First-time Buyers More than Millennials

Contrary to the popular belief that Millennials should wait until their late thirties to buy a home, new research from the Center for Real Estate Analytics at the Atlanta Federal Reserve Bank.suggests that purchases by Millennials are peaking at an earlier age than their older siblings because mortgage credit has actually became tighter for older first-time buyers than for younger ones.

“We found that, if anything, first-time homebuyers have become younger since the crisis, not older, said the study by researchers Flora Raymond and Jessica Dill.   “ We also find, contrary to the popular theory that credit became too tight for Millennials to buy homes, that mortgage credit actually became tighter for older first-time buyers (35 to 48) than for younger first-time buyers (21 to 35) . Taken together, we think these data observations help to explain why the median age of the first-time buyer shifted downwards (instead of upwards) after the housing downturn.”

Raymond and Dill found that younger first-time home buyers (21 to 35 years) were still purchasing homes at relatively high rates after the housing crash, but purchases are spread out over a wider time period. Not only did the distribution of first-time home buyers become younger over time but first-time home buying among the most recent birth years is peaking at an earlier age.

They suggest the cause is tighter credit conditions facing older buyers. From 2001 to 2014, median median credit scores of both groups appear to behave similarly, except during the years when subprime lending prevailed. The median credit scores for both younger and older buyers shifted down between 2003 and 2006, signaling that there were more purchases by higher-risk buyers. The decline in the median credit score was more pronounced for older buyers (down 4.1 percent, from 689 in 2003 to 661 in 2006) than for younger buyers (down just 1.6 percent, from 693 in 2003 to 682 in 2006).

“Since the crisis, the gap between the median credit scores of younger and older buyers has closed (in other words, credit has become tighter for older buyers), which may explain why first-time home purchases have fallen faster for older buyers than it has for younger buyers. Indeed, between 2001 and 2014, first-time home purchases fell by 36 percent for younger home buyers and by 54 percent for older buyers,” they said.

Purchases by older buyers (35-45) in with moderate credit (510 to 710) have lost much more market share (60 percent) than Millennials (25-35) with the same FICO scores (41 percent).  The same is true for older buyers with better scores of 710 to 780 (-50 percent) compared to Millennials in the same credit bracket (-25 pcdercent). First-time purchases by this group of young buyers actually rose by 25 percent.

“Despite the fact that many believe tight mortgage credit, student loan debt burdens, and stagnating wages have made it more difficult for millennials to buy homes, it appears that credit tightness has actually weighed more heavily on older first-time home buyers,” they concluded.

The researchers used the data set from the Federal Reserve Bank of New York Consumer Credit Panel because it allowed them to compare first-time home buyers without first conditioning by age. By comparing older and younger first-time home buyers, they were able to examine the claim that millennial home buyers are behind the stagnation in home sales. In addition to their earlier findings that first-time buyers have become younger, not older, since the crisis, they found that the distribution of first-time home purchases has changed since the housing downturn.