First-time buyers made up half of the home purchases in 2023

Elevated interest rates continue to spook many current homeowners who would otherwise list, which has led to first-time buyers making up a majority share of those closing deals, a report published by Zillow Wednesday said.

Despite cost concerns and limited inventory, half of the home purchases in 2023 were made by first-time home buyers, representing the highest share that the brokerage has ever recorded. In 2022 the first-time buyer share was 45%, while in 2021 it was 37%.

Of the entrants into homeownership, millennials made up the biggest share of the pie, representing 49% of consumers, while Gen Z buyers made up 27%.

Home buyers in these age groups are competing against each other for the limited number of homes on the market, putting upward pressure on already inflated prices, the real estate company's report said.

"Higher mortgage rates and a shortage of inventory is keeping would-be repeat buyers in their current homes," said Manny Garcia, senior population scientist at Zillow in a press release. "A greater relative share of first-time buyers is filling the gap, and they're competing against each other for the limited number of affordable starter homes on the market." 

Affordability continues to be the greatest stumbling block for those wanting to purchase their first home. The time that it takes buyers to save for a down payment has drastically increased, growing to 12 years, up from the nine years reported prior to the pandemic.

In order to make homeownership a reality, about 60% of first-time buyers are relying on their savings and on gifts from family or friends to finance their down payment.

Additionally, a growing share of buyers are paying an upfront fee to reduce the interest rate. About 45% of conventional primary borrowers are buying points to ease monthly costs, up from 30% of borrowers in 2021.

The report also found that Gen Z and millennial buyers are heavily influenced by their furry friends during the home buying process. 

Pet-owning home buyers aged 18 to 29 (88%), in their 30's (84%) and 40's (87%) were more likely to report influence from their pets – in terms of what house they purchased – compared to older age groups.

Meanwhile, having future rental income has become a conversation that's top of mind for young buyers this year. Both Gen Z (54%) and millennial buyers (59%) say that having the opportunity to rent out an entire home to produce rental income is of high importance, Zillow's report found.