First-time homebuyers make gains amid tough market conditions

Despite challenging conditions in the housing market, first-time homebuyers have made notable progress in certain states. According to Freddie Mac's latest market outlook report, the share of conventional conforming mortgages for first-time buyers has increased from around 20% in 2004 to over 50% in the second quarter of this year.

Freddie Mac economists attribute this trend to millennials reaching prime home-buying age and a decline in overall transactions due to the mortgage "lock-in" effect. This effect has boosted the share for first-time buyers.

Rhode Island leads with a significant increase in first-time buyer market share, jumping 14.3 percentage points from 2019 through 2024. The state's small size and limited home transactions may amplify the relative share of these buyers. In September, Rhode Island had just 1,465 active listings, the fewest of any state.

Other states with notable gains include Iowa (12.4%), Nebraska (11.3%), Wisconsin (10.9%), and Connecticut (10.8%). The Northeast and Midwest regions generally saw substantial increases for first-time buyers.

The report notes that areas with moderate or slower home-sale activity see faster growth in first-time buyer shares due to fewer overall transactions. Conversely, states like Arizona and Florida, popular retirement destinations, have seen slower growth as older Americans represent a larger portion of purchases.

Over five years, only Louisiana (-0.2%) and North Dakota (-1.5%) saw declines in first-time buyer shares.

Freddie Mac's analysis focuses on conventional mortgages and excludes cash sales and unconventional loans, making its reported 53% share higher than other estimates. For instance, last month, first-time buyers accounted for just 26% of all previously owned home sales according to the National Association of Realtors®.

All-cash sales comprised 30% of September transactions, appealing to investors and homeowners capitalizing on equity for smaller or more affordable homes elsewhere.

The Freddie Mac report highlights challenges facing prospective first-time buyers despite their significant presence among conventional loans' recipients. Entry-level prices have grown 63% more than high-end homes since January 2000 through July 2024.

“Less affordable housing is acutely felt by those seeking to buy their first homes," says the report.

Additionally, there is a tight supply issue with about 30 renter households per available home for sale—a figure up from less than ten in 2006—stemming from construction slowdowns post-Great Recession which resulted in a shortage of at least 1.5 million homes.