The number of first-time home buyers is rapidly falling as of late. In 2025, the average percentage of first-time homebuyers on the market share dropped from 32% to 24% in a year, based on a report provided by the National Association of Realtors (NAR). The average market share percentage is around 40%, with the highest it’s ever been topping at 50% in 2020. There are a number of reasons for the average share dropping, one of them being housing prices.
Housing prices have increased drastically over the last couple of years, with the national average reaching an all time high of $363,505, according to digital real estate platform Zillow. The average single American makes anywhere between $60,000 and $80,000 a year, and a down payment can range from 3%-20% of the home price. Apollo, an alternative asset management and retirement service, reported that mortgage rates are close to 7%, which totals a sum of around $25,000. With prices this high, first-time buyers are shy to purchase a home outside of their budget. Despite these high prices, demand for homes is still outpacing supply.
The housing market works on a schedule of supply and demand. When demand increases and supply cannot keep up, prices for the product also increase. The National Association of Homebuilders reported that there is a nationwide shortage of 1.5 million housing units, which increases the prices for consumers. When demand is higher than supply, it also creates inflation in the housing market.
Inflation is the rise in price of goods and services over time, meaning money can’t buy as much as it used to. Inflation can increase the costs of products to build the house, increasing the total cost of the home, and subsequently making it more expensive for the consumer. The increase in urbanization is also increasing demand where suppliers fall short.
Currently, over half the world lives in urbanized areas. The amount of people living in urban areas outreached rural area populations in 2007, according to Our World in Data. Urbanization usually increases when there are more job opportunities available in that area to attract more workers. When there are more employment opportunities in the area and urbanizations increase, this drives up the home values in surrounding areas to match the worker influx.
As the number of first-time home buyers increases, so does the demand for homes, driving up the costs for consumers. Producers are failing to keep up with such high demands causing inflation to rise in the housing market. When inflation increases the price of homes, the amount required for a down payment also increases creating a huge burden for home buyers.
Right now, producers have to fill that gap between supply and demand before housing prices can begin to settle. The U.S Bureau of Labor Statistics reported that shelter increased by 0.4% in August, meaning the cost of housing services rose increasing the cost of homes. Based on this data, housing prices will continue to rise, which will likely cause the percentage of first-time home buyers to shrink.
