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.

News provided by

Zillow

Apr 30, 2019, 08:00 ET

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.

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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/

SOURCE Zillow