First-time home buyers remain optimistic despite a tough housing market over the past year. In the hope of achieving their goal of home ownership and providing a comfortable space for their families, young buyers set out to learn about the market and establish their list of priorities for the purchase of their House. As the calendar approaches the new year, the first buyers can expect slightly better inventory, although competition will remain fierce. More than half of first-time buyers are looking to move to a new city or state, which offers the opportunity to take advantage of low-cost markets.
76% of first-time home buyers are Millennials and Gen Z
First-time buyers tend to be younger than the total buyer population, with 76% of first-time buyers being Gen Z or Millennials. The total buyer population is predominantly middle-aged or older, with 26% Gen X and 31% baby boomers. First-time buyers are concentrated in the South, with 47% of first-time buyers buying in the South region compared to 37% of all buyers. About one-third of first-time home buyers are Hispanic, white and black, while of all buyers, 63% are white, 16% are Hispanic and 12% are black.
72% of first-time buyers aim to buy in 2022
Most first-time buyers (85%) are switching from renting to owning. As the housing market in 2021 was difficult to break into, more than a quarter of first-time buyers failed to buy a home in 2021, compared to just 15% of all buyers. This difficult market has led 72% of first-time buyers to buy in 2022, although 20% still hope to buy in 2021. Most first time buyers (64%) have been in the housing market for less than 6 months, while the rest are more likely to have been in the market longer.
To initiate the buying process, half of first-time home buyers viewed online listings, 40% researched home values in their target neighborhood, 34% researched the process real estate, 30% sought advice from friends or family. , and 25% have been in contact with a real estate agent. Interestingly, a larger portion (21%) of the total buyer population has been pre-approved for a mortgage than first-time buyers (15%).
61% of first-time buyers hope to buy a home priced at or below $350,000
First-time home buyers have a lower budget than all home buyers, with 61% hoping to buy for less than $350,000, compared to 45% of all buyers. Only 8% of first-time home buyers are looking for a home over $1 million, compared to 17% of all buyers. In general, first-time buyers plan to put down less money as a down payment than all buyers, 6% plan to pay 0% (using a VA loan), 19% plan to pay 3.5% (using an FHA loan) and 16% plan to pay 3.6% to 10%. By comparison, 41% of first-time buyers plan to pay 10% or less, compared to just 26% of all buyers. However, on the other hand, 10% of first-time buyers plan to offer all the money for a home, compared to 14% of all buyers. Most first-time buyers acquired a down payment by saving a fixed amount each month (56%). Only 15% of first time buyers sold investments for a down payment compared to 27% of all buyers. Notably, 20% of all buyers and 18% of first-time buyers have received a gift from their family that will pay for their down payment.
As the year progressed, the imbalance between supply and demand conditioned market dynamics and pushed listing prices to record highs. The trends were reflected in FTHB’s price expectations. While in the spring 75% of FTHBs were looking for homes priced at or below $350,000, the share fell to 61% in the fall. The most notable changes have occurred in the mid-range of the market, for homes priced between $500,000 and $1,000,000. The change indicates several likely factors, including buyers moving up, investor activity, as well as buyers adjusting their expectations during a changing market.
Three-quarters of first-time buyers are willing to go over budget
To realize the house of their dreams, the first buyers mobilize to get ahead of the competition. These actions include checking ads daily (34% of first-time buyers), discounting more than 20% (25% of first-time buyers), submitting an offer within 48 hours of viewing the home ( 22%) and the desire to exceed their budget (22%). Importantly, first-time buyers are less willing to give up contingencies or participate in a bidding war than all buyers. About a quarter of first time buyers are not willing to go over budget, but 18% are willing to go up to 5% above, 19% are willing to go 6% to 10% above and 21 % are willing to go 11 -20% higher.
In a nod to the competitive nature of real estate markets in 2021, FTHBs have adjusted their willingness to overpay from the spring to fall period. While 39% of FTHBs said they would pay no more than applying for housing in the spring, the share fell to 24% in the fall. With prices continuing to rise throughout the year, larger shares of FTHB indicated they were willing to pay more than asked, pushing 3% above 30% above asking. On a mid-priced home in October, that would have translated to more than $110,000 above the list price, a significant premium.
In terms of getting ahead of competitors in the market, FTHBs indicated a variety of approaches, ranging from exploiting technology to offers above demand and cash. Interestingly, the share of FTHBs that did not plan to use tactics to outbid their competitors fell from 21% in the spring to 9% in the fall.
First-time buyers are driven by home ownership
First-time home buyers are particularly looking for a home with a garage (30%), an updated kitchen (30%) and a large backyard (35%). First-time buyers are largely motivated to buy by achieving their dream of home ownership (34%), getting more space for the family (31%) and acquiring more/better outdoor space (20%). Nearly half of first time buyers plan to move to a new neighborhood, while 36% plan to move to a new city in their state and 16% plan to move to another state. These plans closely match the plans of all buyers.
This year there have been ups and downs in business activity, with the different variants of COVID driving changes and expectations, including housing. For FTHBs, the main desired amenities have remained fairly constant, although there have been notable changes. Garages topped the must-have FTHB list in the spring, but took second place in the fall, when large backyards took the top spot. Other must-haves on the spring and fall lists were updated kitchens, a quiet location, updated bathrooms, and finished basements.
Several items have attracted increasing interest from FTHBs over the year, the most notable being finished basements, guest bedrooms and homes outside of flood or fire zones. A larger share of fall FTHBs also sought in-law apartments, new construction, solar panels and a guest house. Several features lost ground for FTHBs over the year: space for pets, open floor plans, high-speed internet availability, short commutes, and small backyards.
The pandemic has caused shifts in migration patterns, as many homebuyers have moved from high-density downtowns to suburbs and smaller towns with lower density and more affordable housing. However, as 2022 approaches, it appears that the FTHBs are changing their geographic orientation. By spring, most of the FTHBs were looking for homes in another city in the same state. In the fall, the majority of house hunting focused on properties in the current city. Even the share of FTHBs looking across the state line has declined slightly, a potential sign that most moves to other states may slow in 2022.
Expanding Family Size Drives Buying Activity
First-time buyers planning to buy in 2021 are hoping to take advantage of the current market, offer a home big enough for their growing family, and avoid depleting their down payment by continuing to rent. Additionally, first-time home buyers in 2021 are concerned about rising interest rates in the future. First-time buyers who will wait until 2022 to buy have chosen to wait in order to save more money for a down payment, as well as due to concerns about general and personal economic uncertainty. On the other hand, all of the buyers surveyed cited the lack of options and the uncertainty related to COVID as the main reasons for their delay in 2021.
There have been some shifts in priorities and preferences between the spring and fall periods for many first-time buyers. While the dream of home ownership was the common thread of many FTHBs, demographic changes are making their mark. As millennials move firmly into their thirties and form families, the need for more space has increased, and so have expanding households. Additionally, with families, a greater proportion of FTHBs sought different features in their home, better access to the outdoors, and a lower cost of living.
The survey was conducted online from September 23 to October 1 among 2,583 adults by HarrisX (which includes an oversample of 502 respondents buying a home for the first time next year). The margin of sampling error for this poll is plus or minus 1.9 percentage points. The results reflect a nationally representative sample of American adults. Results were weighted by the age, gender, region, race/ethnicity, income and status of these first time buyers, where applicable, to bring them into line with their actual proportions in the population.