Demographics and affordability

By Raphael Barta
Reader Contributor

In the current chaos that is the housing market, everyone is focused on interest rates. The housing market is a sector of the economy that is especially sensitive to interest rate fluctuations, and given its multiplier effect, the housing market significantly affects the U.S. economy. Of course the present situation, which is untenable, results from a myriad of factors and simply reducing interest rates does not address the complexities. 

One of the most basic human needs is shelter: interest rate gyrations, marble vs. granite countertops, discussions about density, any downstream topic about housing is still tied to million-year-old DNA that had our ancestors searching out the right cave. This is very emotional territory. 

Data is not supposed to be emotional, although it is the compilation of, and reflects, the emotional decisions buyers and sellers have made over time. “What is my house worth?”; “How much house do I qualify for?”; “Are home prices rising or falling?” are all emotional concerns, driven by data analysis. 

Raphael Barta. Courtesy photo.

Some of the hard numbers are relatively easy to access, like what homes are currently selling for, how many days listings have been on the market and so on. Demographic questions, like who is buying right now, are trickier because title companies, county assessors and MLS systems do not track much personal information. 

The National Association of Realtors mailed a survey to about 186,000 people to determine a wide range of demographics. They’ve been conducting this survey for about 45 years, and the most recent version covering 2022-2023 revealed that first-time buyers represented 32% of buyers, down from the longer-run average of 40%. 

This should not be surprising, given the lack of affordable homes on the market and the spike in mortgage rates since Spring of 2022. First-time buyers made an average down payment of 8% and their median age was 35 years old. Repeat buyers, folks who were selling a current home and trading up, were a median age of 58 years old and put down 20%, presumably from equity generated from the sale of their existing residence. Meanwhile, the median household income for all homebuyers jumped from $88,000 to $107,000 — that’s in just one year. 

The NAR survey was targeted to individuals; institutional buyers made up about 12% of all home purchases over the past several years, as Wall Street funds became landlords in the single-family housing marketplace (not really an issue for us here in North Idaho, however). 

I’d love to see in-depth interviews for every North Idaho buyer and seller over the past year, but that is not possible. A review of the data provides some demographic insight as follows: 

There are currently fewer than 20 properties listed for sale under $400,000 in Bonner and Boundary counties. An 8% down payment on $400,000 is $32,000, so the buyer needs that amount in cash to even play. Mortgage principal and interest payments on the resulting $368,000 are about $2,700 per month. An annual household income of $110,000 is required to stay within the mortgage lender’s underwriting guideline of 30%. 

This math puts many first-time buyers into the renter category. 

On that same $400,000 house, the repeat buyer with 20% down faces mortgage payments of about $2,300 per month. There is a clear advantage to the older demographic, which has had more time to accumulate savings/equity, while these buyers are also reaping the benefit of the 48% increase in home values since 2019 (from a Case Shiller report). Average hourly earnings during this same time period increased 21%, so the affordability gap widened. 

Bonner and Boundary County demographics show a larger concentration of residents 60 years or older than the national and the state of Idaho population distribution. In past years, lower-cost housing helped explain this as retirees from other states embraced the North Idaho lifestyle, but now the local housing market has caught up with and surpassed the national values. Over the same period, the younger demographic moved away to attend college and to seek more rewarding jobs in more culturally vibrant places. 

Housing accessibility/affordability is a significant determinant of the make-up of a society, and the age/wealth gap became more pronounced here. If it looks like the Baby Boomers are buying up most of the homes, that’s because they are the dominant demographic numerically and financially. 

Raphael Barta is an associate broker with an active practice in residential, vacant land and commercial/investment properties. [email protected].