The number of first-time homebuyers could increase by a third over the next five years, adding a big boost to the housing market and the broader economy, according to a new study.
Credit reporting firm TransUnion estimates that up to 17.1 million first-time buyers are poised to enter the housing market over the next five years. That’s up 32 percent from the 12.9 million buyers in the last five years.
“From a consumer perspective, it’s important for wealth building and housing stability,” says Joel Mellman, vice president at TransUnion. “For communities, it stimulates economic activity. The first domino in the housing chain is the first-time homebuyer.”
The increase comes as Millennials age and become more financially secure.
Those between 20 and 39 represented 60 percent of all first-time buyers in the fourth quarter of 2015, TransUnion found, a huge increase from 15 years ago, when the age group only made up 44 percent of first-time buyers. The youngest cohort — ages 20 to 29 — also represent a larger share, 28 percent in 2015 compared to 17 percent in 2000.
“The first-time homebuyer has become younger,” Mellman says. During the housing boom, investors crowded out first-time homebuyers and during the recession, younger people were hit hardest with unemployment or underemployment along with stricter mortgage requirements. “Now, those forces are easing up,” he says.
Americans planning to buy a home soon — whether for the first time or not — should take several steps to improve their credit profile before purchasing. Pay off all credit card balances in full each month. Don’t be late on payments and don’t go over credit limits, says Mellman.
A half-point higher in interest rate, which is set based on credit history, can mean almost $60 a month more in a mortgage payment and more than $20,000 more in interest over the life of the mortgage.