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Coming Wave of Young Millennial Home Buyers Expected to Further Tighten Market for Starter Homes

Nearly 45 million Americans will reach the typical age for first-time home buyers in the next decade, 3.1 million more than in the 10 years prior

- Starter homes have gained 57.3% in value over the past five years, while inventory in the bottom third of the market has fallen 23.2%, creating a shortage of affordable homes for first-time buyers.

- The demand from this coming wave of buyers will likely keep starter-home values high while those unable to purchase homes will keep pressure on the rental market.

- San Diego and Boston are expected to see the largest jumps in potential first-time buyers, while Portland, Atlanta, Washington, D.C., and Charlotte could see a decrease.

SEATTLE, April 30, 2019 /PRNewswire/ -- Nearly 45 million people in the U.S. will reach the typical age for first-time home buyers in the next 10 years – 3.1 million more than the past decade – creating more demand in an already challenging market for those looking to get into their first home.

The typical first-time home buyer in the U.S. is 34 years oldi. There are 44.9 million Americans aged 24-33, or potential future first-time home buyers, compared with 41.8 million people aged 35-44, or potential past first-time home buyers, a 7.4% increase. 

For the past several years, the housing market has been characterized by shrinking inventory and higher prices, particularly in the least expensive third of homes – the homes most likely to be targeted by first-time home buyers. These starter homes have gained 57.3% in value over the past five years, a median increase of $47,600, while for-sale inventory in this price range has fallen by 23.2%. Over the same time period, the most expensive third of homes gained 26% in value and homes in the middle third appreciated 36.8%.

Though the current housing market is softening, this coming wave of buyers sets up for a future starter-home market with now-familiar dynamics: relatively high demand and low supply, in which the stiff competition among buyers exacerbates the affordability issues caused by rising prices.

"The potential first-time buyer bulge, without inventory to meet it, suggests that the typical age of first-time buyers will continue to be pushed further and further out. The rate of single-family construction is still behind the pace we experienced in the 1990s, and without an increase in truly new supply, would-be first-time buyers will instead persist in the rental market," said Skylar Olsen, director of economic research at Zillow®. "Buyers making the transition from renting to homeownership helps ease rental demand, which limits rent-price growth. If this coming wave of buyers have to compete fiercely for homes to purchase, that could drive up rent prices as well as home values."

The growth in potential future first-time home buyers is more extreme in some markets, including San Diego and Boston, already among the 10 least affordable large housing markets. Both metros will see a nearly 20% increase in the next wave of potential first-time home buyers compared to the previous wave.

First-time buyers are facing difficulties saving for a down payment – a recent Zillow analysis found that buyers need 1.5 years longer to save for a down payment than they did 30 years ago – and securing a loan. Nearly four times as many first-time buyers who obtained a mortgage last year were denied at least once (29%) compared to repeat buyers (8%)ii.

Some markets provide better conditions for first-time buyers with a combination of lower home values, strong appreciation forecasts, available supply and a high share of listings with a price cut. The three best markets for first-time home buyers in the 2019 home shopping season are Tampa, Las Vegas and Phoenix.

Metropolitan Area

Median First-
Time Buyer Age

Decade Below
Median First-Time
Buyer Age (Coming
Wave of Buyers)

Decade Above
Median First-Time
Buyer Age (Past
Wave of Buyers)

% Difference

United States

34

44,912,852

41,800,135

7.4%

New York, NY

34

2,988,970

2,702,278

10.6%

Los Angeles-Long
Beach-Anaheim, CA

33

2,083,102

1,855,932

12.2%

Chicago, IL

34

1,356,832

1,278,547

6.1%

Dallas-Fort Worth, TX

36

1,069,525

1,037,474

3.1%

Philadelphia, PA

34

862,262

758,675

13.7%

Houston, TX

36

1,025,962

967,241

6.1%

Washington, DC

34

903,648

918,075

-1.6%

Miami-Fort
Lauderdale, FL

36

823,676

808,936

1.8%

Atlanta, GA

37

819,210

834,845

-1.9%

Boston, MA

34

735,518

615,700

19.5%

San Francisco, CA

37

773,266

676,036

14.4%

Detroit, MI

34

573,352

501,890

14.2%

Riverside, CA

33

676,025

606,991

11.4%

Phoenix, AZ

34.5

674,284

623,484

8.1%

Seattle, WA

33

605,528

593,164

2.1%

Minneapolis-St Paul,
MN

34

531,087

503,535

5.5%

San Diego, CA

33

552,573

462,898

19.4%

St. Louis, MO

34

383,352

357,516

7.2%

Tampa, FL

36

408,792

378,672

8.0%

Baltimore, MD

36

401,927

347,037

15.8%

Denver, CO

33

456,433

448,321

1.8%

Pittsburgh, PA

34

299,959

267,904

12.0%

Portland, OR

33

351,378

368,658

-4.7%

Charlotte, NC

36

352,881

358,029

-1.4%

Sacramento, CA

33

322,113

307,627

4.7%

San Antonio, TX

36

364,893

319,435

14.2%

Orlando, FL

36

369,289

335,088

10.2%

Cincinnati, OH

34

292,684

262,167

11.6%

Cleveland, OH

34

270,623

237,886

13.8%

Kansas City, MO

34

298,043

290,512

2.6%

Las Vegas, NV

33

320,458

310,044

3.4%

Columbus, OH

34

315,886

272,735

15.8%

Indianapolis, IN

34

286,556

270,426

6.0%

San Jose, CA

33

297,492

288,751

3.0%

Austin, TX

36

368,926

323,562

14.0%

Zillow
Zillow is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with great real estate professionals. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow Group's Chief Economist Dr. Svenja Gudell. Dr. Gudell and her team of economists, data analysts, applied scientists and engineers produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. Launched in 2006, Zillow is owned and operated by Zillow Group, Inc. (NASDAQ:Z and ZG), and headquartered in Seattle.

Zillow is a registered trademark of Zillow, Inc.

i https://www.zillow.com/report/2018/buyers/the-typical-american-home-buyer/
ii https://www.zillow.com/report/2018/highlights/the-challenge-of-buying-for-the-first-time/

 

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