First-Time Homebuyers Still Face Headwinds

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The number of first-time homebuyers has slowly started to slowly rebound after a significant drop since 2000.¹ However, they still face some headwinds. 

“First-time homebuyers are essential to the dynamics of the housing market by allowing current homeowners to trade up,” said St. Louis Fed Economist Paulina Restrepo-Echavarria and Research Assistant Brian Reinbold in a recent issue of the Regional Economist.

The number of first-time homebuyers plunged from 2000 until bottoming out around 2011 and 2012 for the U.S. and most of the states within the St. Louis Fed’s Eighth District.² Since 2011, the number of first-time buyers has increased 34 percent nationally.

Headwinds Still Remain

“Although increasing over the last several years, the number of first-time homebuyers is still much lower than the pre-2007 level, suggesting that tightened lending standards have been a headwind for first-time homebuyers,” the authors said. 

Restrepo-Echavarria and Reinbold explained that credit requirements eased prior to the housing market crisis that began in 2007. “When the housing bubble burst, credit significantly tightened as lenders increased credit worthiness requirements,” they wrote.

First-time Homeowners by Birth Year

In addition, the authors compared the number of first-time U.S. homebuyers who were born in 1975 versus those born in 1985. They found that the total number of first-time homebuyers after age 30 fell considerably for those born in 1975, while the number remained constant after 2010 for those born in 1985. 

“These results suggest that demand by first-time buyers is more spread out for later generations,” Restrepo-Echavarria and Reinbold wrote.

Notes and References

¹ According to the U.S. Department of Housing and Urban Development, a first-time home buyer is “an individual who has no ownership in a principal residence during the 3-year period ending on the date of purchase of the property.” Therefore, an individual who buys their first home, then becomes a renter and finally purchases a home three or more years later would be considered a first-time home buyer again.

² Headquartered in St. Louis, the Eighth District includes all of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

Additional Resources

•  Regional Economist: First-Time Homebuyers Appear to Be Younger, Less-Creditworthy in Eighth District
•  On the Economy: The Homeownership Rate over the Past Decade
•  On the Economy: What Were Some of the Lasting Effects Caused by the Recent Housing Crisis?