A wave of first time buyers is expected to fall upon the U.S. housing market in the next three years. Around 8.3 million first-time buyers will be looking to apply for a mortgage between 2020 and 2022, according to a new report by the TransUnion credit rating agency. That’s significantly higher than the 7.6 million first-time buyers who entered the market between 2016 and 2018.
However, those first-time buyers are unlikely to find their home search will be an easy one. New buyers face a number of pressing challenges, including higher home prices, sluggish wage growth and a limited housing inventory.
“But we may be starting to see daylight as slowing home price appreciation, low unemployment, increased wage growth, and low interest rates are helping affordability,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion. “As a result, we are optimistic that first-time home buyers will contribute more to homeownership than at any time since the start of the Great Recession.”
Today’s first-time buyers tend to be younger than they were during the time of the Great Recession. The median age of buyers fell from 39 in 2010 to 36 in 2018. The first-time home buyer share has increased by 6% among 25- to 34-year-olds, according to TransUnion’s research.
TransUnion’s report was based on a survey of 943 people who’ve never owned a home but plan to buy one within the next three years. Those people’s biggest motivations to buy a home include seeking more privacy (cited by 45% of respondents), building equity or wealth (44%), getting married (24%) and expanding their family (23%).
Of those who’ve decided to delay a home purchase, 58% said their main reason was not having enough money for either a down payment, or to pay off the monthly mortgage repayments. Respondents also cited other common reasons for delaying a home purchase, such as desiring a more steady job (39%) and home prices being too high (35%). Some 60% said they would be willing to relocate to another city or state if the cost of a home was lower than at their current location. Generation Z respondents, born in or after 1995, were the most likely to say they’d be willing to move.
TransUnion said first-time buyers may need more education. It report concludes that many buyers still don’t understand the home buying process. For example, 67% believe it’s necessary to have a high credit score to buy a home, while 34% said they’re unfamiliar with the mortgage financing options available to them. Many said they hadn’t heard of mortgage programs available to them that require only a 3% down payment, or those that cater to people with low credit scores.
“Many of our potential first-time home buyer respondents don’t seem to be aware of the wide variety of financing options available to them,” Mellman said. “It suggests there’s a large opportunity for lenders to proactively identify consumers who are interested in becoming first-time home buyers and then educating them on options they may not be aware of. Consumers may find homeownership programs that are more flexible than they originally thought, and lenders in turn can gain new customers.”