Zillow names this year's best markets for first-time home buyers

Rhea-AI Summary

The Zillow analysis reveals St. Louis as the top market for first-time home buyers in 2023, with half of the top 10 markets located in the Midwest. First-time buyers constituted 50% of all home buyers last year, the highest share since 2017. Factors such as rent affordability, available listings, and competition levels determine the rankings. Zillow's Senior Economist highlights the challenges faced by first-time buyers but anticipates an easing of market conditions. The report emphasizes the importance of financial readiness and pre-approval for a home loan, with an increase in new listings expected to benefit buyers.

Insights

Market Research Analyst

The recent analysis on the best markets for first-time home buyers highlights a shift in real estate dynamics that could influence various sectors, from construction to mortgage lending. The data points to the Midwest as a burgeoning region for affordability, which may redirect the flow of new entrants into the housing market. This trend could signal a potential rise in demand for housing in these areas, possibly driving up local economies and impacting regional banks and construction companies. However, the sustainability of this trend hinges on broader economic factors, such as job market health and interest rates.

Economist

From an economic standpoint, the high proportion of first-time buyers entering the market is a double-edged sword. On one hand, it reflects a recovering consumer confidence and a potential uptick in homeownership rates, which can have a positive effect on consumer spending and the stability of housing markets. On the other hand, the 'rate lock' effect mentioned could be indicative of underlying volatility in interest rates and the broader financial markets. If mortgage rates were to rise significantly, this could dampen the current momentum and affect housing affordability, with potential repercussions for the economy at large.

Real Estate Economist

Scrutinizing the affordability metrics and the share of similar-age households presents a nuanced view of the housing market. These factors not only influence individual purchasing decisions but also shape the demographic composition of neighborhoods, potentially altering local demand for services and amenities. The long-term implications of such demographic shifts may include changes in urban planning and public policy, as well as variations in market attractiveness for real estate investors. Additionally, the reference to 'easing' market headwinds suggests a possible plateau in the previously escalating housing prices, which could affect the investment strategies of real estate funds and individual investors.

Top markets for first-time home buyers offer affordable options and peers living nearby

• St. Louis is the top major market in the U.S. for first-time home buyers. 
• Half of the 10 best markets for first-time buyers are in the Midwest. 
• First-time buyers made up half of all home buyers last year, the highest share since at least 2017. 

SEATTLE, April 4, 2024 /PRNewswire/ -- First-time home buyers in 2023 accounted for the largest share of home purchases in years. A new Zillow® analysis names this year's best markets for first-time home buyers, where their dollars go further and starter homes are relatively plentiful. 

First-time buyers made up half of all home buyers last year, according to Zillow's Consumer Housing Trends Report. That's the highest share in the report's history, which dates back to 2018, and up from a low of 37% in 2021. The "rate lock" effect — occurring when homeowners are financially incentivized to keep their current home because of the low rate on their current mortgage — has kept some would-be repeat buyers on the sidelines. 

"Affording a home is a tough hill to climb, and it's especially steep for those buying their first home. Headwinds like mortgage rates, low inventory and rising rents are still strong, but easing," said Zillow Senior Economist Orphe Divounguy. "Attractive homes are moving fast, so those looking to buy this spring should get their finances in order now, including getting pre-approved for a home loan. The increase in new listings this spring, due both to new construction and to more homeowners choosing to sell, will give buyers more options and help to ease price growth. The housing train is slowing down just enough to give more first-time buyers an opportunity to hop on board."

Top 10 markets for first-time home buyers in 2024 

1. St. Louis
2. Detroit
3. Minneapolis
4. Indianapolis
5. Austin
6. Pittsburgh
7. San Antonio
8. Birmingham
9. Kansas City
10. Baltimore

Zillow's ranking of the best markets for first-time buyers is based on rent affordability, the share of for-sale listings a typical household can comfortably afford, how stiff the competition is expected to be for those affordable listings, and how many similar-age households¹ live in the area. 

The top two markets in Zillow's ranking, St. Louis and Detroit, score well in terms of affordability — both for rental affordability as a prospective buyer builds up savings for a down payment, and for the number of affordable homes available to buy. Austin, while not the most affordable housing market on this list, ranks first in the number of similar-age households living there with which a buyer can build a community. 

First-time buyer tips and tricks
Zillow has gathered tools on one easy-to-navigate web page to help aspiring first-time buyers make the leap to homeownership, from getting finances in tip-top shape to hiring the right real estate agent who can help a buyer win a home. 

Zillow's affordability calculator can help buyers understand their price range, including some of the hidden costs of homeownership that are often overlooked. 

It's important for first-time buyers to understand how their credit score can impact their loan options and costs. A top loan officer can help a buyer understand all of their options, such as whether "paying points" or an adjustable rate mortgage might make sense for a buyer's specific financial situation. 

Renters who pay their landlords through Zillow can now help build or enhance their credit history by opting in to rent payment reporting, with on-time payments reported to a major national credit bureau. 

A down payment is often the biggest financial hurdle for a first-time buyer. Those without enough money saved for a 20% down payment shouldn't fret — nearly half of buyers put down less than 20%. Zillow displays down payment assistance programs a buyer may be eligible for on all for-sale listings. 

Metro Area	Rent Affordability	Share of Affordable Listings	Affordable Listings Per 100 Renters	Share of Similar-Age Households
St. Louis	19.9 %	66.7 %	3.4	26.0 %
Detroit	21.5 %	63.6 %	4.0	24.3 %
Minneapolis	19.8 %	48.4 %	2.5	28.1 %
Indianapolis	22.0 %	50.4 %	2.6	28.9 %
Austin	20.3 %	23.0 %	1.3	33.6 %
Pittsburgh	21.9 %	62.9 %	3.7	24.4 %
San Antonio	22.6 %	32.8 %	2.6	30.6 %
Birmingham	22.4 %	47.5 %	4.2	25.3 %
Kansas City	21.0 %	50.6 %	2.2	27.2 %
Baltimore	22.2 %	56.4 %	2.3	27.1 %

 

1 Ages 29–43. Zillow Research shows nearly half of first-time buyers are in this age range.

Methodology
Zillow's 2024 list of the best markets for first-time buyers is based on four metrics: 

• Rent affordability, as defined by the share of median household income spent on rent.
• The share of available for-sale inventory on Zillow that the median household can comfortably afford, spending no more than 30% of income on the estimated monthly mortgage cost, assuming 5% down and 6.94% mortgage interest rate. 
• The ratio of affordable for-sale inventory to renter households. More inventory per renter household is an indicator of less competition for each listing. 
• The share of households ages 29–43. More households of similar age mean a higher score in Zillow's ranking. 

About Zillow Group
Zillow Group, Inc. (Nasdaq: Z and ZG) is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, dedicated partners and agents, and easier buying, selling, financing and renting experiences. 

Zillow Group's affiliates, subsidiaries and brands include Zillow®, Zillow Premier Agent®, Zillow Home Loans℠, Trulia®, Out East®, StreetEasy®, HotPads®, ShowingTime+℠, Spruce® and Follow Up Boss®. 

All marks herein are owned by MFTB Holdco, Inc., a Zillow affiliate. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org). © 2023 MFTB Holdco, Inc., a Zillow affiliate.

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SOURCE Zillow

FAQ

What is the top market for first-time home buyers according to Zillow's analysis?

St. Louis is identified as the top market for first-time home buyers in 2023 by Zillow's analysis.

What percentage of home buyers were first-time buyers in 2023?

First-time buyers accounted for 50% of all home buyers in 2023, the highest share since 2017.

What factors determine Zillow's ranking of the best markets for first-time buyers?

Zillow's ranking considers rent affordability, share of affordable listings, competition levels for available listings, and the presence of similar-age households in the area.

What advice does Zillow offer to aspiring first-time buyers?

Zillow provides tools to aid first-time buyers in financial preparation, understanding credit scores, exploring loan options, and accessing down payment assistance programs.

How does Zillow suggest overcoming the hurdle of a down payment for first-time buyers?

Zillow recommends exploring down payment assistance programs and highlights that nearly half of buyers put down less than 20% as a down payment.