The share of buyers purchasing a home for the first time has rebounded to pre-pandemic levels. First-time buyers now represent 45 percent of all buyers, up from 37 percent surveyed last year, according to Zillow’s 2022 Consumer Housing Trends Report.
The share of first-time homebuyers plummeted during the pandemic amid rapidly rising home values and tough competition. 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 stronger offers.
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 percent of Gen Z and 38 percent of millennial buyers, compared with 30 percent 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,” Zillow population scientist Manny Garcia said in a release. “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 homebuyers are making up a larger share of a smaller pie. Newly pending home sales were down 29 percent in August, compared with a year prior, as buyers struggle to keep up with higher home prices and interest rates. Home values remain 14.1 percent higher than last year. When combined with rising mortgage interest rates, the typical monthly payment on a home is nearly 60 percent higher today than it was a year ago.
According to Zillow, 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 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 with eight days in June, meaning buyers have twice as much time to decide on a home compared with this time last year.
First-time homebuyers may also have more bargaining power, according to Zillow, as a growing number of sellers drop their prices. The share of listings with a price cut grew to roughly 28 percent in August.