7 housing market trends for young homebuyers to watch

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Tough competition, soaring prices, and rising rates are just some of the many factors affecting younger generations of potential homebuyers. For more on these trends and others affecting young homebuyers, read our roundup below.

Younger buyers are flocking to Midwest and Mountain States

Cities in the middle of the U.S. have the highest percentage of adults under 30 buying homes. Provo and Ogden, Utah had the highest percentage applying for purchase mortgages with 37% and 35% shares of their total group of buyers, respectively.

High prices and rising rates could continue to prevent young people from buying homes, according to Archana Pradhan, principal and economist at CoreLogic. “These trends toward record-breaking home prices and increasing mortgage rates will impact potential younger homebuyers and lower-income homebuyers the most,” Pradhan said.

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Younger homebuyers flock to Midwest, Mountain states

Average monthly mortgage payment for first-buyers is inching up

Competition over housing low supply, high prices, and high rates are leading to the inability of young, first-time buyers to purchase homes.

For first-timers, mortgage payments reached 25.6% from just 22.4% in the prior year of average household incomes in the fourth quarter, according to the National Association of Realtors.

“The escalating prices took a toll on home shoppers, compelling many to come up with extra cash and forcing others to delay making a purchase altogether,” said Lawrence Yun, National Association of Realtors’ chief economist. “A number of families, especially would-be first-time buyers, are increasingly being forced out of the market, and this is why supply is critical.”

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First-time homebuyer affordability is at its worst in 3 years

The popularity of build-for-rent housing is rising

In a market squeezed for inventory, build-for-rent properties are further constraining supply.

In the fourth quarter of 2021, a report from the National Rental Home Council and John Burns Real Estate Consulting found that 26% of acquisitions by single-family rental providers were build-for-rent, up from just 3% in the third-quarter of 2019.

“[The occupants of these homes] tend to be younger professionals, perhaps with children, and are saving for a down payment or they're paying off student loan debt. But the plan is definitely toward homeownership at some point,” said David Howard, executive director of the National Rental Home Council.

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Build-for-rent homes make up a larger share of investor buys

The younger generations are more open to purchasing a home at auction

In a competitive market with rising costs, younger homebuyers are open to different methods of purchasing a home. This age group is more willing to purchase a home at auction than previous generations.

Some factors that motivate young people to buy a house at auction include cost savings, a faster purchase process and being able to bid remotely through an app or website.

"Our study suggests that a growing number of buyers are embracing technology, and many are open to new pathways to achieve homeownership," said Dave Steinmetz, president of origination services at ServiceLink. "This indicates there is an opportunity for lenders to provide more targeted resources and guidance to buyers throughout their homebuying journey."

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Younger buyers seek alternatives to traditional home buying

Some current homeowners are anti-'densification,' further straining future supply

Many American homeowners and renters support adding accessory dwelling units, or ADUs, in residential neighborhoods, according to a study from Zillow. Some backlash to legislation that would have lessened restrictions on ADUs shows that the strategy might not be as supported by the public.

"Modest densification measures, like adding a small apartment in a backyard or converting existing homes into duplexes, could create millions of new homes,” Garcia added.

In New York, proposed legislation by Gov. Kathy Hochul that was ultimately pulled would have allowed one ADU on every residential owner-occupied lot and provided funding to jurisdictions and nonprofits.

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People support higher housing density in theory, but not in NY ‘burbs

Gen-Z-ers are flocking to secondary cities

Gen Zers aged 18 to 24 accounted for approximately 10% of homebuyers across the nation’s 50 largest metros last year, according to a report from LendingTree. These young adults are more determined than millennials to buy homes and have credit scores that fare well in this competitive market, the report found.

"These guys and gals are in the mid-700s credit-score wise. They really did their homework," said Andy Shelby, a senior loan officer and assistant branch manager at Broker House Lending in Louisville, Kentucky.

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Investor competition is high

Since the COVID-19 pandemic, property investors have accounted for a greater share of homebuying deals, research shows. With an increasing demand for residential real estate, landlords and flippers are less deterred by high housing prices than previously recorded.

To be sure, investors bought 20% of homes in areas tracked by Redfin during the first quarter of 2022. This is the highest share since 2000, the earliest year included in the brokerage’s data.

“Right now, those who can afford to buy are going to face less competition,” said Sheharyar Bokhari, an economist at Redfin. “They still have to compete with investors. The investor share has gone up, which means regular homebuyers were squeezed more.”

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Investors bought record share of homes as mortgage costs climbed