The share of first-time homebuyers increases by almost 50%

One group of borrowers is actually benefiting from the high interest rate environment  – first time homebuyers, a report published by Zillow said.

First-time buyers now represent 45% of all buyers, up from 37% of borrowers surveyed by Zillow in 2021.

This group pulled back from the market during the pandemic due to rapidly rising home values and increased competition, the report said. But with rising mortgage rates, fewer homeowners are looking to move, creating ample opportunity for first-time purchasers.

Buyers also have additional time to decide on a property and more power to haggle on price. In August, listings of properties lingered close to 16 days on the market, compared to eight days in June. Meanwhile, the share of listings with price cuts grew to 28% in August. 

"The flow of homes into the market is slowing, suggesting homeowners are likely comparing their current low mortgage rate to today's rates and deciding not to move," said Manny Garcia, population scientist at Zillow, in a statement. "While rising mortgage rates are hurting affordability for all buyers, first-time buyers may be less deterred by higher rates because they're comparing a monthly mortgage payment to what they're paying in rent."

Last year, first-time shoppers were losing out to older, repeat buyers, who were tapping the equity in their existing homes and using the cash to make a stronger offer, the report said.

As a result, younger buyers were more likely to lose a bid on a home to an all-cash buyer. Among Gen Z buyers, 45%, along with 38% of millennials, said they were outbid by a buyer able to make a cash offer at least once last year, according to the report.

But that market dynamic has shifted, as "today's much-needed market rebalancing" will benefit first-time buyers, who have the flexibility to shop without trying to time the purchase of their new home with the sale of an existing home, Zillow said.

Headwinds for first-time buyers remain, such as affordability challenges, the report said. Home values are now 14.1% higher than last year and the rise in mortgage interest rates has pushed a typical monthly payment on a home to nearly 60% higher today than it was a year ago. 

"If they can overcome affordability challenges, first-time buyers could be well positioned to continue increasing their share in today's shifting market, with more options and time to decide on the right home," Zillow's report said.