First-time homebuyers are a growing share of the market
But not because it's easier to buy.
Joy Sushinsky carried a potted purple orchid, a housewarming gift, up the front steps of a brick row house in Baltimore’s Hampden neighborhood. An associate broker with Compass Real Estate, Sushinsky recently helped Lauren and Michael James buy the house — their first. Inside, she marveled at the changes the couple had made in just a few weeks.
“It looks completely different,” Sushinksy said, taking in the refinished wood floors and midcentury modern furniture. “I can’t wait to see what else you’ve done.”
They’d done a lot. Well, Michael, 36, who’s a professional remodeler and handyman, had. That’s a big reason they could buy this house. It needed a lot of work.
“There was, like, five layers of wallpaper and paint and plaster on all of these walls and gray LVP flooring,” Michael said, referring to the popular-yet-much-derided “luxury vinyl plank” flooring common in new construction.
He stripped the walls and restored the original wood flooring, some of which was rotting, basically undoing a lot of the previous owner’s cosmetic fixes.
“It was a very cheap flip,” he said. “Everything they’ve touched we’re probably going to replace.”
The Jameses are those rare first-time buyers who found a way in what can feel like an impossible market. Between high prices and high mortgage interest rates, this is the least affordable housing market in 40 years, according to Realtor.com
For Lauren, 34, a psychotherapist, it’s been a four-year saga to become a homeowner. She started looking for a house in 2020.
“Because I’m self-employed, I was denied,” she said. “I needed two years of tax returns. So I put those dreams on the shelf and bought a car instead.”
She built up her therapy practice and her income. Then she and Michael got married last fall and started looking for a house together in March, only to find there weren’t many for sale.
“We would see homes in the area, but they were way out of our price range,” Lauren said.
They found one place they liked at the top of their price range, and were outbid by $30,000. So when this three-bedroom flip went on the market, they made an offer that day to buy the house as is, waiving their right to an inspection.
“I wouldn’t advise people to do that, I really wouldn’t,” Michael said. Because of his home-improvement experience, though, “I could walk around here and I could see what needed to be done.”
First-timers made up 32% of homebuyers last year, according to the National Association of Realtors. That’s up from just 26% the year before, an all-time low. But Jessica Lautz, the group’s deputy chief economist and vice president of research, said the cohort of people who are buying their first home is still well below the long-term average of almost 40%.
“They’ve really struggled to enter into the market,” Lautz said. “Whether that’s housing affordability, inventory, student loan debt, child care costs — all of these things are piling on for first-time homebuyers and making it quite difficult to save for a down payment and enter into homeownership.”
Most of those who manage to pull it off are older than typical first-time buyers in the past — and wealthier.
“In fact, their household income is about $20,000 more than household income of first-time homebuyers the past year,” Lautz said. “They’re more likely to use stocks for their down payment. It’s an interesting first-time homebuyer that we see this year.”
One reason the share of first-time buyers has been growing recently, Lautz said, is that so many existing homeowners who bought when interest rates were low feel trapped. That’s known as the lock-in effect. A recent working paper from the Federal Housing Finance Agency estimated it prevented more than 1.3 million sales between mid-2022 and late 2023.
“I would consider myself a little bit rate-locked,” said William Gordon, a real estate agent with the Gordon Team in Bakersfield, California. “Now that we have baby No. 2 coming in November.”
Trading up for a bigger house would mean trading in his 2.75% interest rate for something closer to 7%, based on recent averages for a 30-year fixed-rate mortgage. Gordon said his current monthly payment, including property insurance and taxes, is about $2,500.
“If we were to buy the same house today, we’d easily be paying $4,000 a month,” he said. “Nobody can even afford to buy the same house they’re in right now.”
Gordon is seeing some loosening in his market, as sellers come to terms with higher rates and can’t wait any longer. At the start of the year, he said, there were just 400 to 500 active listings for single-family homes in a city of about 400,000. Now it’s almost double that.
A young family he’s been working with is closing on their first house later this month, he said. They’d been looking since November.