September Market Report: 3 Under-the-Radar Buyer Trends

First-time home buyers now make up roughly 50% of all purchasers. Two years ago, that figure was 37%.

As the Fed continues to grapple with a resilient economy and persistent inflation, sellers postpone plans to move this year, and buyers watch for lower mortgage rates, we take a look at some burgeoning trends. This month, we check in with Zillow economists and researchers on helping first-time home buyers, vetting climate risk, and making sense of a promising trend affecting high-priced homes.

First-time home buyers now make up almost half of all purchasers

Key stat: First-time home buyers now make up roughly 50% of all purchasers. Two years ago, that figure was 37%.

“Thirty-seven percent was a low-water mark,” says Zillow Senior Economist Jeff Tucker, “driven by elevated trade-up and investor activity, as homeowners and investors scrambled to capitalize on record-low mortgage rates and lock in lower ownership costs.”

With higher rates spurring widespread rate-lock among homeowners, first-time home buyers are facing surging rents. “The cost of renting has risen much more in the last 2 years than any prior 2-year period in our data,” Tucker says. “And there’s an unusually large number of Americans in their early- to mid-30s right now — the peak home-buying age.”

Three of four buyers surveyed in 2023 reported they’d saved up their down payment over time. That’s the highest percentage since 2018, when Zillow began tracking the number. Higher mortgage rates incentivize putting more money down, so a greater share of first-time buyers, who are less likely to tap proceeds from a previous home sale, may help explain the shift towards more savings.

Nearly a third also said they’d been denied financing at least once. This number skews higher for younger generations.

Home shoppers increasingly consider climate risks in their search

Key stat: More than 4 out of 5 prospective home buyers consider climate risks as they shop, new Zillow research shows. Most say their major concern is flood risk, followed by wildfires, extreme temperatures, hurricanes, and drought.

“While all generations juggle trade-offs like budget, floor plans and commute times, younger home shoppers are more likely to face another consideration: They want to know if their home will be safe from rising waters, extreme temperatures and wildfires,” says Zillow senior population scientist Manny Garcia.

As an example, let’s look at just one risk: flooding. A 2021 study by climate-risk non-profit Front Street Foundation found that nearly 4.3 million U.S. homes face “substantial flood risk.” What’s more, flood damage isn’t covered under most homeowner insurance policies, and taking out a mortgage in some areas may require clients to purchase flood insurance from the National Flood Insurance Program.

High-priced home sales are cooling slower

Key stat: Sales of the most expensive third of homes have fallen less since last year than sales of bottom-tier homes in 28 of the 50 largest metro areas.

“After a sluggish stretch lasting several months, sales of the most expensive homes on Zillow have recently shown signs of life,” says Anushna Prakash, Zillow Economic Research data scientist. “While price growth is still strongest for less-expensive houses, the gap in appreciation is narrowing.”

Nationally, sales of homes in the top third of the price band rose 6% from May to June, while sales of homes in the least expensive market tier dropped 2%. The top tier of homes has maintained a slim advantage in monthly sales growth since February, but the gap widened in May and June.

Annually, sales of top-tier homes in San Jose rose 3.9% — the only major metro where sales increased, for any tier. After San Jose, sales for high-tier homes were relatively strongest in San Diego, Portland, and Austin, all markets that saw notable price declines in the summer of 2022.

Takeaway: Double check your comps. Buyers and sellers in some markets can consider changing their strategies based on the price point at which they’re transacting.

Published by 
GRANT BRISSEY
SEP 14, 2023