Photo courtesy of the U.S. Department of Housing and Urban Development.

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, according to research from economists at NAHB.

Delving into data from the most recent biennial American Housing Survey, which was conducted by HUD and the Census Bureau in 2009, the study, “Characteristics of New and First-Time Home Buyers,” finds that 41% 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% 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.

Although new housing is significantly more expensive than the existing housing stock, 13% of first-time buyers between 2007 and 2009 purchased new homes. By comparison, 17% of all the homes sold during that period were new.

Competing with foreclosures and large house price declines in the existing home market, new homes lost ground disproportionately during the housing downturn, falling from a 21% share of the homes sold in both 2005 and 2007.

The average market value of a new home purchased was more than $315,000, compared to more than $238,000 for existing homes. Less than half as many new homes as existing homes were purchased for less than $150,000 — 19% compared to 41%, respectively. On the other end of the price spectrum, 10% of new homes were purchased for $600,000 or more, compared to 6% of existing homes.

First-time buyers for the two years of the study had an average age of 34, compared to 46 for those trading up. Sixty-two percent of the first-time buyers were under age 35, while only 6% were over 55.

The average income of first-timers was over $67,000, about 30% below the average household income of trade-up buyers of $97,000.

About half of the first-time buyers earned less than $60,000; a third earned between $60,000 and $99,999; and about 18% earned $100,000 or more. Almost twice as many trade-up buyers had incomes of at least $100,000.

About two-thirds of first-time buyers were white, non-Hispanics, compared to 82% of trade-up buyers. Of the remaining third, 12% of the first-time purchasers were black, non-Hispanic; 11% were Hispanic; 8% were Asian and 2% were some other race or ethnicity.

Following a steady decline from 2.87 persons in 2001, the average household size for first-time home buyers was 2.58 persons in 2009. This was slightly less than a 2.71 average among trade-up buyers, a group that experienced a similar decline in household size since the start of the decade.

The average size of first-time buyer households has been on the decline because of a rise in the number of single-person households from 18% in 2001 to 22% in 2009 and a decline in those comprised of married couples with children from 33% to 26% over the same period.

Nineteen percent of the first-time buyer households in 2009 were married without children and 8% were single-parent households.

Trade-up buyers were more likely to be married than first-time buyers. About 7% more trade-up buyers were married without children and about 8% more were married with children.

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, compared to 24% of those trading up.

The large majority of first-time buyers — 82% — purchased single-family detached homes. The remaining 18% were split evenly between single-family attached homes and multifamily condominiums.

Looking at survey findings on the reasons that buyers chose a particular home, the NAHB study notes that:

• Price was a top consideration for 38% of the first-time buyers. By comparison, it was cited by 27% of trade-up buyers.
  
  
• The yard or view, layout and design, quality, size and exterior of the home were all more important considerations for those trading up than households buying for the first time.
  
  
• The design and layout of the home was the single most important factor for trade-up buyers — 41%. It was second most important for first-timers, cited by 36% of them.
  
  
• The size of the home was a deciding factor for 25% of trade-up buyers and 21% of first-timers.

Examining survey results depicting the home-buying process experienced by buyers, the study finds:

• On average, first-time home buyers looked at 15 homes before making their purchase, similar to trade-up buyers, who looked at 16. Half of the first-time buyers looked at 10 or more homes, but 10% looked at only one home before making their purchase.
  
  
• Sixty-three percent of first-timers used their savings as the source of their downpayment, down from 72% in 2001, but up from 57% in 2007.
  
  
• Twenty-two percent of those buying a first home had no downpayment — down from a peak of 25% in 2007, reflecting a tightening of credit standards in the mortgage market.
  
  
• Forty-two percent of trade-up buyers used the sale of their old home as the downpayment and 36% used their savings. Twelve percent made no downpayment.

For more information, e-mail Heather Taylor at NAHB, or call her at 800-368-5242 x8503.