First-time home buyers are back, despite affordability challenges

Rhea-AI Summary

First-time home buyers now constitute 45% of all buyers, a significant increase from 37% last year, as reported by Zillow's 2022 Consumer Housing Trends Report. This trend is largely due to repeat buyers pulling back amidst rising mortgage rates. With increased options and bargaining power, first-time buyers are making gains in a challenging market, although home values remain 14.1% higher than last year. Newly pending home sales fell by 29% in August compared to the previous year.

Positive

• First-time buyers now represent 45% of all buyers, up from 37% last year.
• First-time buyers are gaining more options and bargaining power in the current market.
• Buyers have doubled the time to decide on homes, with listings lingering 16 days on average in August.

Negative

• Newly pending home sales decreased by 29% in August compared to last year.
• Home values are still 14.1% higher than last year, affecting affordability.
• The typical monthly payment on a home is nearly 60% higher than one year ago.

First-time buyers now make up nearly half of all home buyers, rebounding from pandemic lows

• First-time home buyers represent 45% of all buyers, up from 37% of all buyers surveyed last year.
• Repeat buyers may be disproportionately pulling back from the market due to rising mortgage interest rates. 
• The rebalancing market may especially benefit first-time buyers, who have more options, more time and more bargaining power. 

SEATTLE, Oct. 13, 2022 /PRNewswire/ -- First-time home buyers have returned to the housing market and those who can afford a home are finding success after years of setbacks. The share of buyers purchasing a home for the first time has rebounded to pre-pandemic levels. First-time buyers now represent 45% of all buyers, up from 37% of buyers surveyed last year, according to Zillow's 2022 Consumer Housing Trends Report. If they can overcome affordability challenges, first-time buyers could be well positioned to continue increasing their share in today's shifting market, with more options and time to decide on the right home.  

The share of first-time buyers plummeted during the pandemic amid rapidly rising home values and tough competition, even with high demand coming from the large millennial generation. Zillow research found younger, likely first-time shoppers were losing out to older, repeat buyers who were able to tap the equity in their existing homes and use cash to make a stronger offer. A 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 Zillow population scientist Manny Garcia. "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."  

First-time buyers are making up a larger share of a smaller pie. Newly pending home sales were down 29% in August, compared to a year prior, as buyers struggle to keep up with higher home prices and interest rates. Home values remain 14.1% higher than last year, even after two consecutive month-over-month declines. When combined with rising mortgage interest rates, the typical monthly payment on a home is nearly 60% higher today than it was a year ago. 

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.   

The silver lining is that today's much-needed market rebalancing has the potential to especially benefit first-time buyers, who have the flexibility to shop without trying to time the purchase of their new home with the sale of an existing home. Listings typically lingered 16 days on the market in August before going under contract, compared to 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. 

As the market changes, aspiring first-time buyers may need to change their approach. Zillow has gathered tools that can help shoppers make the leap to homeownership on one easy-to-navigate web page. These five tips are a good starting point:  

1. Understand what's affordable. As mortgage interest rates fluctuate, aspiring buyers can start with a mortgage calculator and Zillow's affordability tools to understand what they can realistically afford on a monthly basis. Zillow's calculators take into account some of the hidden costs of homeownership, such as property tax, insurance and HOA dues, which can add up to more than $750 per month. But it's always best to leave some wiggle room in the budget for unexpected maintenance projects and emergency repairs. First-time shoppers should also explore down payment assistance programs they may qualify for on every listing on Zillow. 
2. Finance first. First-time buyers can gain a competitive edge by getting pre-approved for a mortgage. A Zillow survey finds 86% of sellers prefer a buyer who has been pre-approved, as opposed to pre-qualified, for a mortgage. This financial check gives sellers more certainty that a buyer will close on time, and it allows buyers to make a stronger, faster offer the minute the right home hits the market.  Buyers can start the pre-approval process online. Don't hesitate to try, try, try again. Nearly half of all first-time buyers (47%) are denied a mortgage at least once before ultimately getting approved.  
3. Hire the right agent. An experienced agent will have a finger on the pulse of their local market and know all the changes happening in it, and they can help buyers make strategic decisions to win. They'll know when to come in with an offer under list price or when to expect a bidding war. Buyers can click Agent Finder on the Zillow homepage to read customer reviews and check out an agent's recent sale history. They should plan on interviewing their top candidates and asking the right questions.
4. Shop smarter with tech. New real estate technology can help first-time buyers make faster, smarter decisions. Tools like Zillow's multi-location search filter and Homes to Compare let shoppers find available listings in different areas and evaluate up to five homes side by side. Virtual 3D Home tours and interactive floor plans give shoppers a more authentic experience of a home, allowing them to quickly narrow down their options and tour fewer homes in person. 
5. Keep the contingencies. With less competition, first-time buyers should have the leverage to include important contingencies in their offers that could potentially save them a lot of money in the long run. An inspection contingency can identify major structural, mechanical or safety issues that could be extremely costly to repair and cause buyer's remorse. A financing or appraisal contingency will ensure a buyer can walk away with their earnest money if a home fails to be appraised for the offer price or if their financing falls through.  

About Zillow Group:

Zillow Group, Inc. (NASDAQ: Z and ZG) is reimagining real estate to make it easier to unlock life's next chapter. As the most visited real estate website in the United States, Zillow® and its affiliates offer customers an on-demand experience for selling, buying, renting or financing with transparency and ease. 

Zillow Group's affiliates and subsidiaries include Zillow®, Zillow Offers®, Zillow Premier Agent®, Zillow Home Loans™, Zillow Closing Services™, Zillow Homes, Inc., Trulia®, Out East®, ShowingTime®, Bridge Interactive®, dotloop®, StreetEasy® and HotPads®. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org). 

 

 

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SOURCE Zillow Group, Inc.

FAQ

What percentage of home buyers are first-time buyers as of October 2022?

As of October 2022, first-time home buyers represent 45% of all buyers, up from 37% the previous year.

How have rising mortgage rates affected repeat buyers?

Rising mortgage rates have disproportionately affected repeat buyers, leading many to stay in their current homes.

How much have new pending home sales decreased recently?

Newly pending home sales fell by 29% in August compared to the same month last year.

What is the impact of high home values on first-time buyers?

First-time buyers face challenges as home values remain 14.1% higher than last year, impacting affordability.

What factors are benefiting first-time buyers in today's market?

First-time buyers are benefiting from more options, increased bargaining power, and longer time to decide on purchases.