First-time home buyer: Here’s why they are purchasing more homes today

March 4, 2018 - 4 min read

First-time buyers rise to the occasion

Ask any first-time home buyer about his or her home search, and you’ll probably hear that the quest isn’t easy. It’s tough saving up for a home. Landing a mortgage at the desired rate can be tricky. And beating out contenders to the right home requires good timing.

But fresh numbers show that first-timers aren’t giving up. In fact, they’re buying more homes than they have in 12 years. That’s a good sign for the market. And it may encourage others to pursue their dreams of owning.

If you’re eager to buy your first home, the good and bad news is that you’re not alone. But with careful planning and the right approach, you’ll stand a better chance of buying your first home sooner.

Verify your new rate

What the research found

A new report by Genworth Mortgage Insurance had some big findings about first-time home buyers:

  • They bought over 2 million new or resale homes in 2017. That’s a 7 percent increase over 2016. It also makes 2017 the strongest year for the first-time buyer market since 2006
  • They purchased more than half a million single-family homes last quarter. That makes it the best fourth quarter for first-timers since 2006
  • They bought 39 percent of all single-family homes sold
  • They accounted for 55 percent of all purchase mortgages financed last quarter
  • They financed nearly 400,000 homes using low down payment mortgages last quarter. That makes it the strongest fourth quarter for low down payment loans since 2000

First-time homebuyers guide

Why this data matters

Tian Liu, Genworth’s chief economist, says these findings are important.

“We’ve seen 40 percent growth among first-time buyer purchases since 2014. It accounts for over 80 percent of the growth in home sales since 2014. That has had a big impact on the housing market,” he says.

Today, he continues, “We believe the housing market is more mature than it was three years ago. Between 2007 and 2015, the annual number of first-time buyers has been below 1.8 million. But in 2017, they purchased over 2 million homes.”

That’s proof of a major housing market recovery, he adds.

“Growth will likely slow from this point forward. But the size of the first-time buyer market and its impact on housing will remain a significant force,” notes Liu.

Why more first-timers are buying

Liu says a few key factors are driving increased home sales among first-time buyers. One is improved conditions for borrowers and workers.

“Interest rates were at or below 4 percent between 2014 and 2017. Also, wages are higher and the unemployment rate is down to around 4 percent today,” says Liu.

Keith Baker, Mortgage Banking Program coordinator and faculty at North Lake College, agrees.

“Fewer are unemployed or underemployed among those younger than 35. So increasing income and stable employment are driving this,” says Baker.

Joshua Harris, clinical assistant professor of real estate at NYU’s Schack Institute of Real Estate, says millennials are reaching their peak buying years. That creates pent-up demand.

“They’re starting to enter their thirties. Many are getting married and having kids. These activities lead to a desire to buy a house,” says Harris.

What’s more, rents have been rising steadily for five or more years, Harris adds. “That makes the cost of owning lower than renting in many cases.”

Act soon if you can

Baker says demand among first-timers isn’t going away anytime soon.

“The trend for millennials getting into the housing market will continue. This is due to growth in household formations,” says Baker.

Mortgage rate predictions for 2018

If Genworth’s findings don’t motivate more people to become first-time buyers, another factor will, says Liu.

“Prices are going up. This creates a sense of urgency for buyers to purchase sooner,” he says.

Harris agrees.

“If one can buy now and wants to buy, they should. Delaying could be costly,” says Harris.

Action steps you can take

To help you afford and claim a home, experts suggest a few tips.

First, “Find and work with a good lender and real estate agent you can trust,” Liu says.

Next, “Don’t be afraid to use a low down payment mortgage. They can be a great tool for first-time buyers,” says Liu. “Many believe they need 20 percent down to buy a home. But our data show that about 80 percent of buyers put down less than 20 percent. Most are in the 3 to 5 percent down range.”

Also, try to be more open-minded about your housing choices. There’s nothing wrong with a fixer-upper or a smaller starter home.

How to buy a house with no money down in 2018

“First-time buyers should try to purchase a home for much less than what they qualify for to finance,” notes Harris.

Liu agrees that millennials need to be more creative when choosing a home. “And they should be prepared to put in some sweat equity if needed.”

There’s nothing wrong with picking a resale home, Baker says. “They’re statistically less expensive. New construction prices will most likely increase in the short-term. That puts a newly built home out of reach for many millennials.”

Lastly, once you find the right home, prepare to act fast.

“Be ready to make a very good offer upfront. And expect to compete with multiple offers,” says Liu.

Time to make a move? Let us find the right mortgage for you

Erik J. Martin
Authored By: Erik J. Martin
The Mortgage Reports contributor
Erik J. Martin has written on real estate, business, tech and other topics for Reader's Digest, AARP The Magazine, and The Chicago Tribune.