First-Time Buyers Giving Housing Market a Boost

One positive has come out of the housing market recently, as new data from Zillow’s Consumer Housing Trends Report revealed that for the first time since the pandemic began, the number of first-time homebuyers has rebounded as these buyers now represent 45% of all buyers, up from 37% last year. 

In today’s shifting market, this data shows that first-time buyers are able to overcome affordability challenges, positioning themselves to take a larger slice of market share. 

During the early days of the pandemic, the share of first-time buyers plummeted due to rapidly rising home values and tough competition as younger buyers were losing out to older, repeat buyers who traditionally have more assets which were leveraged to create offers first-time buyers could not otherwise afford. 

A recent Zillow survey found younger buyers were more likely to report losing to an all-cash buyer at least once, as was the case for 45% of Gen Z and 38% of millennial buyers, compared to 30% of all buyers. 

"First-time buyers now appear to be making relative gains as high mortgage interest rates disproportionately encourage current homeowners to stay put," said Manny Garcia, Zillow Population Scientist. "The flow of homes into the market is slowing, suggesting homeowners are likely comparing their current low mortgage rate to today's rates and deciding not to move. While rising mortgage rates are hurting affordability for all buyers, first-time buyers may be less deterred by higher rates because they're comparing a monthly mortgage payment to what they're paying in rent." 

According to Zillow, first-time buyers are making up a “larger share of a smaller pie.” Pending home sales were down 29% in August 2022 year-over-year as buyers struggle to keep up with higher home prices and interest rates. 

Home values continued rising last month, but slowed to a rate of 14.1% above last year. The typical monthly payment on a home is nearly 60% higher than it was last year, even after two consecutive months of price declines. 

“Recent Zillow research finds those affordability challenges have driven up demand for the lowest-priced homes in each market. While there are fewer buyers overall, first-time buyers may find more competition for starter homes.” 

While new listings typically only stayed on the market for a brief 16 days, this is up from eight days in June, meaning buyers have twice as much time to decide on a home compared to this time last year. First-time buyers may also have more bargaining power as a growing number of sellers drop their prices. The share of listings with a price cut grew to roughly 28% in August, according to Zillow's latest monthly market report. 

Zillow concluded by saying that the “silver lining” is a “much-needed” market rebalance has the potential to benefit first-time buyers who traditionally have more flexibility to shop without trying to time the purchase with the sale of an existing home.