Housing Readies for First-Time Buyer Shift

May 15, 2017

Get ready to see more first-time home buyer clients. In the first quarter of 2017, the number of new-owner households was double the number of new-renter households.

About 854,000 new-owner households were formed during the first three months of this year, more than double the 365,000 new-renter households in that period, according to U.S. Census Bureau data. What’s more, it’s the first time in a decade that new buyers outpaced new renters.

First-time buyers are “crawling out of their parents’ basements, they’re forming households and they’re looking to buy,” Doug Bauer, chief executive of the Tri Pointe Group Inc., a home builder, told The Wall Street Journal.

Home builders say they’re ready to respond with a shift away from luxury homes and toward more entry-level homes at lower price points that tend to appeal to this growing group of millennial buyers.

Thirty-one percent of spec homes built in the first quarter of this year by major builders were smaller than 2,250 square feet, according to Zelman & Associates, a housing research firm. That is an increase from 27 percent a year ago.

"There's an increasing confidence level in that part of the market," Gregg Newlson, cofounder of Trumark Cos, a California home builder, told The Wall Street Journal. “The recovery is finally starting to take hold in a broader way.”

First-time buyers accounted for 42 percent of buyers this year, up from 31 percent at the lowest point in 2011, according to Fannie Mae. Fannie Mae defines first-time buyers as anyone who hasn’t owned a home in the past three years.

Builders say their return to the starter-home market should not be compared to the rapid construction that took place in the mid-2000s.

"One of the misconceptions is that, here we go again, this is another 2005, 2006 where all these builders are going to build hundreds of thousands of homes. We're not going crazy," says Brent Anderson, vice president of investor relations at Meritage Homes Corp. in Scottsdale, Ariz.

Many people are buying their first homes later in life, which means they tend to have higher incomes, builders note. They also may have greater expectations for what they want to have in a home after renting luxury downtown rentals.

Source: “The Next Hot Housing Market: Starter Homes,” The Wall Street Journal (May 11, 2017) [Log-in required.]