While many continue to struggle with affordability and rates edging toward the 7%-mark, first-time home buyers in 2023 accounted for the largest share of home purchases in years.
A new analysis of Zillow data uncovers the best markets for first-time home buyers, where their dollars go further, and locations where starter homes are abundant amid a market short on inventory.
Breaking the “rate lock” effect
Zillow’s Consumer Housing Trends Report found that first-time buyers comprised more than 50% of all home buyers in 2023—the highest share in the report’s history, which dates back to 2018, and up from a low of 37% in 2021. The “rate lock” effect—occurring when homeowners are financially incentivized to keep their current home because of the low rate on their current mortgage—has kept some would-be repeat buyers on the sidelines in this high rate environment.
“Affording a home is a tough hill to climb, and it’s especially steep for those buying their first home. Headwinds like mortgage rates, low inventory and rising rents are still strong, but easing,” said Zillow Senior Economist Orphe Divounguy. “Attractive homes are moving fast, so those looking to buy this spring should get their finances in order now, including getting pre-approved for a home loan. The increase in new listings this spring, due both to new construction and to more homeowners choosing to sell, will give buyers more options and help to ease price growth. The housing train is slowing down just enough to give more first-time buyers an opportunity to hop on board.”
Gauging the hottest markets
According to Zillow, first-time buyers have been settling in the following markets to date in 2024:
- St Louis, Missouri
- Home buying age households as a share of total households: 26%
- Percentage of median household income spent on rent: 20%
- Affordable listings as a percent of total for-sale inventory: 67%
- Affordable listings to renter household ratio: 3.4 per 100 renters
- Detroit, Michigan
- Home buying age households as a share of total households: 24%
- Percentage of median household income spent on rent: 21%
- Affordable listings as a percent of total for-sale inventory: 64%
- Affordable listings to renter household ratio: Four per 100 renters
- Minneapolis, Minnesota
- Home buying age households as a share of total households: 28%
- Percentage of median household income spent on rent: 20%
- Affordable listings as a percent of total for-sale inventory: 48%
- Affordable listings to renter household ratio: 2.5 per 100 renters
- Indianapolis, Indiana
- Home buying age households as a share of total households: 29%
- Percentage of median household income spent on rent: 22%
- Affordable listings as a percent of total for-sale inventory: 50%
- Affordable listings to renter household ratio: 2.6 per 100 renters
- Austin, Texas
- Home buying age households as a share of total households: 34%
- Percentage of median household income spent on rent: 20%
- Affordable listings as a percent of total for-sale inventory: 23%
- Affordable listings to renter household ratio: 1.3 per 100 renters
- Pittsburgh, Pennsylvania
- Home buying age households as a share of total households: 24%
- Percentage of median household income spent on rent: 22%
- Affordable listings as a percent of total for-sale inventory: 63%
- Affordable listings to renter household ratio: 3.7 per 100 renters
- San Antonio, Texas
- Home buying age households as a share of total households: 31%
- Percentage of median household income spent on rent: 23%
- Affordable listings as a percent of total for-sale inventory: 33%
- Affordable listings to renter household ratio: 2.6 per 100 renters
- Birmingham, Alabama
- Home buying age households as a share of total households: 25%
- Percentage of median household income spent on rent: 22%
- Affordable listings as a percent of total for-sale inventory: 47%
- Affordable listings to renter household ratio: 4.2 per 100 renters
- Kansas City, Missouri
- Home buying age households as a share of total households: 27%
- Percentage of median household income spent on rent: 21%
- Affordable listings as a percent of total for-sale inventory: 51%
- Affordable listings to renter household ratio: 2.2 per 100 renters
- Baltimore, Maryland
- Home buying age households as a share of total households: 27%
- Percentage of median household income spent on rent: 22%
- Affordable listings as a percent of total for-sale inventory: 56%
- Affordable listings to renter household ratio: 2.3 per 100 renters
Overcoming the affordability hurdle
Zillow’s ranking of the best markets for first-time buyers is based on rent affordability, the share of for-sale listings a typical household can comfortably afford, how stiff the competition is expected to be for those affordable listings, and how many similar-age households live in the area.
The top two markets in Zillow’s ranking, St. Louis and Detroit, scored well in terms of affordability—both for rental affordability as a prospective buyer builds up savings for a down payment, and for the number of affordable homes available to buy. Austin, Texas, while not the most affordable housing market on this list, ranks first in the number of similar-age households living there with which a buyer can build a community.
Zillow’s 2024 list of the best markets for first-time buyers is based on four metrics:
- Rent affordability, as defined by the share of median household income spent on rent.
- The share of available for-sale inventory on Zillow that the median household can comfortably afford, spending no more than 30% of income on the estimated monthly mortgage cost, assuming 5% down and 6.94% mortgage interest rate.
- The ratio of affordable for-sale inventory to renter households. More inventory per renter household is an indicator of less competition for each listing.
- The share of households ages 29-43. More households of similar age mean a higher score in Zillow’s ranking.
Click here for more on Zillow’s analysis of the top markets for first-time homebuyers.
