First-Time Home Buyers Stoke Demand for Smaller, Less Expensive Homes

According to research from economists at the National Association of Home Builders (NAHB), a growing segment of the housing market, first-time home buyers are contributing to an increase in demand for smaller and less expensive new homes. Delving into data from the most recent biennial American Housing Survey, which was conducted by the Department of Housing and Urban Development and the Census Bureau in 2009, the study, "Characteristics of New and First-Time Home Buyers," finds that 41 percent of the 8.4 million households who bought a home between 2007 and 2009 were first-time buyers.

The market share of first-timers was up from 35 percent in both 2005 and 2007. Although some of the demand was fueled by the initial version of the home buyer tax credit in mid-2008, which was specifically targeted to those buying a home for the first time, the upward trend is expected to continue as children of baby boomers — members of a generation that is larger than their parents' — move into their household formation years in the period ahead.

First-time buyers for the two years of the study had an average age of 34, compared to 46 for those trading up. The average income of first-timers was over $67,000, about 30 percent below the average household income of trade-up buyers of $97,000. About half of the first-time buyers earned less than $60,000.

The household size of both first-time and trade-up buyers has been declining, while single-person households have been on the rise. First-timers bought homes with an average market value of about $184,000, compared to more than $297,000 for trade-up buyers. First-time buyers bought homes averaging 1,874 square feet, significantly below the 2,549-square-foot home purchased on average by those trading up. Forty-six percent of first-timers bought homes smaller than 1,500 square feet.