- One of the hardest years ever for hopeful homebuyers is officially in the books.
- Property sales were weighed down once again by restrictive mortgage rates.
- Here’s why millennials and Gen Zers made the right call by not buying, and what will change in 2025.
Young would-be homebuyers largely put off their purchases last year, and for good reason.
Lofty prices and elevated mortgage rates made 2024 an unusually tough year for all buyers, but they were especially formidable obstacles for those who weren’t already homeowners.
First-time buyers only accounted for 24% of US home purchases last year, a new report from Realtor.com found. That’s the lowest rate since at least 1981, researchers noted on January 9, even though home affordability has improved significantly from its late-2023 lows.
Millions of millennials and Gen Zers hoping to buy homes and were shut out last year weren’t alone.
Housing market transactions underwhelmed for a third straight year during a stalemate between aspiring buyers and sellers. Home prices drifted down in late 2024, but not enough for some buyers to feel like they were getting good value, given where mortgage rates were. And owners held out for renewed price growth since they didn’t want to sell for less than their neighbors did.
National Association of Realtors
“Prices have been so sticky; they just stay where they are,” said Joel Berner, an economic researcher at Realtor.com who co-authored the report with Danielle Hale, in a recent interview. “People have seen the house down the street a couple of years ago sold for $700,000. Why would I list mine for $600,000?”
Some housing market analysts think property prices will get a second wind, likely starting in the busier spring and summer months. Realtor.com’s official forecast is for 3.7% price growth, though that’s way slower than a few years ago. And in some markets, prices could keep falling.
“It takes time for people to adjust to the new normal, and so prices are finally starting to drop,” Berner said.
Why not buying a home paid off last year
Although buying a house and building equity is a worthy aim, many young Americans may end up glad that they waited to sign on the dotted line.
Mortgage rates remained a major headache last year, even though they were below their peak. The Federal Reserve’s plan to cut interest rates more slowly may keep many iced out of the market, though the consensus among real-estate observers is that borrowing costs will still fall.
In the meantime, those who’ve opted for apartments likely aren’t breaking the bank. Rent growth has stagnated as inflation remained below 3%, and Realtor.com’s research shows that rent has fallen for the last 16 months. Whether rent was flat or down, there was little rush to buy.
“Rents have been so soft in the last year that people look around and they say, ‘Why would I pay a $3,000 mortgage payment when I can rent the same place for $1,500?'” Berner said.
It makes sense that young renters were reluctant to swap their reasonably priced leases for exorbitant mortgages, especially if there weren’t many attractive options available. Home inventory has long been limited and is only now returning to pre-pandemic levels.
Realtor.com
Steadily rising home supply is one of the healthiest signs possible for the housing market. While Berner said this isn’t a buyer’s market quite yet, improved inventory could send it that way.
Opportunities abound for young buyers
While millions are looking for homes, Hale and Berner focused their report on younger buyers, specifically those born in the 1990s who were between the ages of 25 and 34 last year.
Those younger millennials and older Gen Zers may want to start their search on the East Coast, which is home to most of the 10 best cities for first-time buyers, according to Realtor.com.
Their methodology is based on factors like home prices, the local economy, and price growth history. The typical home in each of these markets is below the US median of $416,880 and is also considered affordable, meaning monthly payments are less than 30% of a buyer’s income.
Three of these top markets for 25- to 34-year-olds are in Florida, two are in Western New York, and three others are in the Mid-Atlantic region. Only one city cited by Realtor.com was west of the Mississippi River: North Little Rock, Arkansas.
Realtor.com
“These larger, Eastern, older communities have a lot of things to offer,” Berner said of the list. “They’re well established; there’s a lot of infrastructure, a lot of restaurants, a lot of daycares, etc. And the listing prices are pretty soft out there. So it’s just kind of a good mix.”
What’s even more fascinating is which markets didn’t make the list. So-called “Zoomtowns” that were trendy during the pandemic were absent, as were highly popular cities in Sun Belt states like North Carolina, Tennessee, and Kentucky. Cities in California didn’t come closer either.
Some of the hottest markets in recent years ranked well in previous renditions of this report, Berner said. If history repeats, young buyers who settle down in cities on this year’s list will be glad they did since they’ll see price appreciation in the years to come. And they also might be grateful that they didn’t get suckered into a subpar deal last year.
“People saw the previous ones and they said, ‘These are really good places to buy,’ went and bought, and then those listing prices were up,” Berner said. “We’re kind of chasing our tail a little bit with things, trying to stay ahead of the market. And so it wouldn’t surprise me next year if the list looks a whole lot different.”
