With wage growth failing to keep up with the pace of inflation over the past year, many households are feeling burdened paying for necessary expenses, and many have turned to drawing on “previously built-up savings” from the pandemic, according to analysis from Fannie Mae’s Economic & Strategic (ESR) Group. As part of the analysis, Fannie Mae outlines how debt stress for renters and lower savings rates among mortgage borrowers could translate to slower demand activity in the housing market and shift homeowner demographics further from first-time buyers.
As debt stress mounts for renters, their ability to save for a down payment on a home will be further challenged. This may continue to limit first-time home buyers and drive a continued demographic shift in home buying, which now favors even more heavily wealthier consumers. According to an annual survey by the National Association of Realtors (NAR), first-time home buyers comprised only 26% of home purchases in 2022. This metric is down from 34% compared to 2021 and is now at its lowest level since NAR began collecting data (historically, first-time home buyers have made up approximately 40% of purchases).
A growing share of mortgage borrowers report being stressed in their ability to make debt payments as well as an inability to save money. This points to a risk that a growing share of current borrowers may be vulnerable to becoming delinquent on their mortgage payments if they were to experience a job or other income loss.
For the broader economy, consumers may soon cut back their spending to a greater degree, adding to risk of a recession occurring over the next year. If this were to occur, it would likely reduce demand for housing and provide lesser support for home sales, home prices, and mortgage originations.
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