First-time buyers represented 31 percent of purchase activity in November, foreshadowing what may be to come in 2015.
Though activity in the first-time buyer market has been limited over the past several months, many market observers predict that this key demographic will increase in 2015. Heading into the new year, first-timers represented a larger share of the number of properties consumers purchased, which likely comes as good news to real estate agents.
The share of first-time buyers in November reached 31 percent, up from 29 percent in October, the National Association of Realtors reported. That's the largest portion first-time buyers have accounted for in more than two years. Over the past 12 months, the number of people buying a home for the first time has averaged right around 29 percent.
Earlier this month, home listing website Zillow forecast that 2015 would be a "big year for buyers," particularly those who are in the market for the first time.
"Contrary to popular opinion, millennials - buyers aged 23 to 34 - actually do want to buy homes," the Zillow report stated. "And current millennial renters are more optimistic than other generations that they will eventually be able to afford a home."
The report added that while there are several reasons for why first-time buyers represented a larger portion of the market in 2014, it's not due to lacking interest, but rather their delaying getting married and/or having children, which are the main drivers of home purchases.
Some contend that first-time home buying has been much more common than what's been widely reported. For example, using its First-Time Buyer Mortgage Risk Index, public policy think tank American Enterprise Institute said that the measure averaged 52 percent between October 2013 and 2014.
According to the AEI, the FBMSI is the first time the national first-time buyer share has been calculated using a complete data set, one that has limited sample error.
The report also found that from July 2013 to this past June, the rate of first-time buyer activity represented 45 percent of the overall market, higher than NAR's estimate of 36 percent.
"It is not surprising that the NAR results, which are based on a small and non-random sample, provide an inaccurate picture of the importance of first-time home buyers," said Stephen Oliner, co-director of AEI's International Center on Housing Risk. "The FBMSI is as comprehensive as currently possible and will hopefully allow a discussion of the facts on this important issue."
Buying more affordable than renting
What may also lead to a greater number of first-time buyers is the cost of ownership when compared to renting. Among millennials - who are generally in their 20s and early-30s - buyers should expect to spend about 17 percent of their monthly income on housing payments, based on a new study from Zillow. Historically, first-time buyers have spent about 22 percent of their income on buying a residence.
Stan Humphries, Zillow's chief economist, reminded real estate agents that buying conditions are getting better on an almost daily basis so the allure of homeownership will become that much more significant in 2015, as mortgage rates are expected to remain in affordable territory.
In Freddie Mac's latest Primary Mortgage Market Survey, lending rates for a 30-year fixed-rate loan averaged 3.8 percent during the week of Dec. 24, up slightly from the previous seven-day period but down from 4.4 percent a year ago at the same time.
Frank Nothaft, Freddie Mac chief economist, said that housing markets across the country are improving, with the biggest gains witnessed in the markets that were hardest hit by the recession. Low mortgage rates have played a key role.