The median homebuyer age in America is getting older and older each year. Recently, higher home prices and higher mortgage rates aren't help.
With the goal of increasing our asset-to-liability ratio to 5:1 or greater by the time we retire, buying a home too late may pose problems. Let's do a little digging into why buying a home at a later age may not be ideal.
The median age of first-time homebuyers is now 33. This is the oldest age on record dating back to 1981, according to the National Association of Realtors. Back in 1981, the median age of first-time homebuyers was between 28-29.
It's clear the rising cost of homes, the rapid increase in college tuition, and the delay in household formation all have something to do with the first-time homebuyer age ticking up. Thankfully, we're all living a little bit longer as well.
The median age of first-time homers increasing by ~14% since 1981 is interesting. However, what's even more interesting is the fact the median age of all homebuyers is now 47. This is a 51% increase over the median age of 31 in 1981. What's going on here?
Why The Median Homebuyer Age Is Getting Older
Here's the chart that illustrates the median age of all buyers, first-time buyers, and repeat buyers in 2019. It gives us a clue as to why the median age of all home buyers has increased so dramatically.
The median age of all real estate buyers is roughly 47. For first-time homebuyers, the median age 33. The median age for repeat real estate buyers is about 55 years old.
Main Reason For Older Buyers
The main driver of the huge increase in the median age of all home buyers is due to the rapid increase in the age of the repeat buyer. In 2019, 55 was the median age for a repeat buyer compared to around 41 in 1981.
We know that the average U.S. homeownership tenure is roughly 10 years, up from just 3.7 years in 2004 during the go-go days. Therefore, one might guess that the median age for the typical second-time home buyer is roughly 42 (33 + 9).
Given the median age of the repeat buyer is around 55, this means there are simply more 55+-year-old repeat buyers than 42-year-old repeat buyers.
Perhaps by the time you are 55 years old, you're on to your third, fourth, or fifth house already. At 55 years old, your wealth has probably accelerated more quickly than a 45-year-old given you likely have more investments.
Further, given we are wealthier and living longer, perhaps more people in their 50s are deciding to upgrade their homes and live it up more.
Investing In Real Estate As A Retirement Strategy
My main assumption for the dramatic age increase for repeat buyers is that since 1981, more Americans are buying more properties for investment and passive income purposes. No longer is a home just a place to live. Real estate has become a highly popular way for people to create wealth.
Instead of just buying a primary residence to live in for the rest of your life, people are buying rental properties to generate valuable cash flow. With interest rates near all-time lows, the value of rental income has gone up. It now takes a lot more capital to generate the same amount of risk-adjust income.
No wonder why demand for real estate is so high and will likely stay high for years after the pandemic. Inventory is declining, rates are staying low, and people are much wealthier.
A Curious New Median Age Homebuyer Chart
Here is another chart that shows the median age of all homebuyers by Deutsche Bank. It has continuously increased since this data was first recorded. Thankfully, we're all living longer. However, biologically, it's still much harder to have a baby after 35-40.
Why I Bought Multiple Properties
Most of the people I know own more than one property. But I'm 45 years old and have many friends who are in their late 40s and 50s. Even my grandparents owned a primary residence and some farmland with a modest home.
I bought my first home at 26, second home at 28, third home at 30 (mistake), fourth home at 37, sold my second home at 40, and bought a forever home at age 43 in mid-2020.
It was just too tempting not to buy when mortgage rates were so low. Further, I was able to get a better deal during the beginning of the pandemic. With the stock market also doing so well, using profits to live a better life makes sense.
65% of the reason why I wanted to buy my first home was that I no longer wanted to live in a one-bedroom apartment. At the time, I was living with my girlfriend in a noisy building. The upstairs neighbor was a loud drunk and the place leaked whenever it rained heavily. Rent felt loving throwing money away.
The remaining 35% of the reason was that I felt there was a lot of upside pricing potential in owning the property. I had come from Manhattan where owning a 2/2 with a full-on park view condo for less than $600,000 was unheard of.
This 65% / 35% ratio of wanting to live a better life and expecting upside pricing potential has been pretty consistent throughout my entire home buying experience. I just love living in a nice place given I spend about half my time at home.
Investing In Real Estate More Strategically
It was only until I invested a significant amount of money in real estate crowdfunding starting in 2016 that I shifted the reason for buying ratio to 100% focused on returns. After all, if I couldn't enjoy my investments, then I sure as heck hoped they made a profit.
Below is my latest real estate crowdfunding dashboard where I've received at least $624,000 in distributions since 2017. I love making passive income and in a diversified way.
Check out Fundrise, my favorite private real estate investing platform with over $3.5 billion in assets under management. Fundrise specializes on single-family and multi-family homes in the heartland of America. Midwest properties are cheaper with higher rental yields.
Generational Wealth With Real Estate
Several friends are buying multiple properties in their neighborhoods to form a cluster of properties for their immediate family. The older I get, the more I think about doing the same.
Of course, we won't know whether our children will actually end up living close by until we are older. But I think it is the dream of many parents to want to be involved throughout their children's lives.
Imagine how we'd feel as our children near the median first-time home-buying age. Surely, many of us will have wished we had bought them a property 33 years ago.
For example, a $1 million home today would be worth $5 million in 33 years at a 5% compound annual growth rate. Yikes. Good luck buying in the future kids!
It's incumbent on parents to recognize opportunity and buy real estate today. You know your kids, 25 years from now, will wonder why you didn't buy more real estate at today's prices. In 25 years, the median homebuyer age will likely be 3-5 years old.
Percentage Of Americans Who Are Homeowners
The latest data shows that the percentage of Americans who own homes continues to tick up. The percentage is now at about 65% from a low of about 63% in 2016. As the median homebuyer age gets older, it will be interesting to see the homeownership percentage change.
My guess is that the percentage of Americans who own homes will continue to increase as the millennial generation continues to seek homeownership. Millennials make up around 38% of all homebuyers today.
By 2035, my guess is that the percentage of Americans who own homes will increase to 70%.
Generational Homeownership Rates
Today the millennial homeownership rate is 43 percent. This is well below the rates of generation X (67 percent) and the baby boomer and silent generations (77 percent). As millennials grow older, the percentage homeownership rate will increase.
As the millennial generation homeownership rate continues to increase, so will the overall percentage of Americans who own homes. It seems likely all generational homeownership rates will end up in the mid-70% and stay there. By then, however, a new generation will be coming up and bring the average back down.
I expect most home equity to remain within families as homes are passed down from generation-to-generation. As generations inherit homes and buy their own homes, more households will own multiple homes.
The median age for first-time home buyers may continue to increase given real estate prices continue to beat wage inflation.
As for repeat buyers, I've spoken to many people in their 50s and 60s and all of them are spending more money to live it up while they still have the chance. The pandemic has really made people question the point of saving and investing so much.
Given we are also living longer and getting wealthier, the median age of repeat homebuyers will likely continue to increase as well.
Shoot To Own Your Primary Residence By 30
Now that you know the median homebuyer age for first-time and repeat buyers is 33 and 55, respectively, it's worth trying to buy your first property by age 30. After all, your goal is to outperform the median and average person so you can achieve financial independence sooner.
Remember, the median American is not in great financial shape. However, the average American is technically a millionaire in their 60s. But your goal is to be a multi-millionaire given inflation robs us of our purchasing power.
The sooner you can settle down in your career and find a place you think you will enjoy living in for 10 years, the sooner you can get neutral real estate. Further, the sooner you buy your property, the sooner you can pay off your mortgage. Depending on your assets, it may be difficult to qualify for a mortgage the older you get.
If you can't buy your first property by age 30 using my 30/30/3 home buying rule, then do so as soon as you can. If bought responsibly, homeownership is one of the best ways the typical person can build wealth.
When you look back on your life, you're not going to savor all the money you saved living in a cheap place. Instead, you're going to cherish all the memories you had in a nicer home. Of course, you can always rent a nice place and invest your money elsewhere. But I think it's best to do both.
Real Estate Recommendations
1) Invest in real estate crowdsourcing.
If you don't have enough of a down payment to buy a property or are simply not ready to own yet, consider still gaining exposure to real estate through Fundrise. It's free to sign up and explore. For most people, investing in a diversified fund is the easiest way to gain real estate exposure.
Fundrise is one of the largest and oldest real estate crowdsourcing companies today with various eREITs available to investors. With Fundrise, you can earn real estate income passively in the Sunbelt where growth is strong and yields are high. For most people, investing in a diversified real estate fund is the best way to go.
If you are an accredited investor and interested in investing in specific commercial real estate deals instead of a diversified eFund, check out CrowdStreet.
CrowdStreet focuses on real estate opportunities in 18-hour cities. These are smaller cities with lower valuations, higher cap rates, and potentially faster growth due to positive demographic trends. You can build your own diversified select real estate portfolio. Just make sure to thoroughly analyze the sponsor and its history and track record.
I've personally invested $810,000 in real estate crowdfunding to diversify my investments and earn income 100% passively. Both platforms are free to sign up and explore.
2) Shop around for a mortgage.
Check the latest mortgage rates online. When lenders compete, you win. Get as many custom personalized quotes as you can to get the lowest mortgage rate possible.
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