First-time Buyers Drop Boosts Rental Market Gains

First-time buyers are shrinking, pushing renter numbers to record highs and fueling gains for landlords and apartment REITs.

July 9, 2025

Jordan B.

The number of first-time home buyers in the US has dropped to 1.1M—almost half the historical average—due to unaffordable prices and high mortgage rates.
As a result, the number of renter households has hit an all-time high of 46M, creating tailwinds for apartment landlords and REITs like Equity Residential and AvalonBay.
While homebuilder stocks previously outperformed, rising vacancy rates and heavy buyer incentives are compressing margins, potentially reversing investor sentiment in the housing sector.

Key Takeaways

Young Buyers on the Sidelines

The steep climb in home prices and borrowing costs since 2022 has sidelined a generation of would-be homeowners, per the WSJ. Traditionally, around 2.1M people become first-time buyers each year. Last year, that figure fell to just 1.1M—380,000 fewer than in 2023 and nearly 50% below the norm, according to the National Association of Realtors (NAR).

This year is on track to be even worse. Through May, home sales are projected to reach just 4.03M for 2025—the lowest level since 1995—with the sharpest pullback occurring in homes priced under $500,000, typically the entry point for new buyers.

Builders Feeling the Pinch

Homebuilders once buoyed by pandemic-era demand are losing steam. May 2025 sales of new homes fell 6% year-over-year, and the outlook isn’t improving. First-time buyers—who now account for around 40% of new home sales—are pulling back.

To attract buyers, builders like Lennar are offering incentives equivalent to a 13.3% price discount, the most since 2010. While strategies like mortgage-rate buydowns helped initially, they’re proving less effective as affordability worsens, pressuring profit margins across the sector.

Renters Surge, Vacancy Shrinks

The homeownership crunch has inflated the nation’s tenant base to a record 46M renter households. Roughly 1.2M are classified as “trapped renters,” unable to buy despite a desire to do so. Add in demographic pressures from millennials and Gen Z, and the pool of potential renters continues to expand.

With rental vacancy rates declining after a brief period of oversupply, landlords now have leverage to raise rents. REITs like Equity Residential and AvalonBay Communities are poised to benefit as demand returns to the multifamily sector.

Homeownership Barriers Are Rising

According to Harvard’s Joint Center for Housing Studies, the income needed to buy a median-priced home has jumped to $127,000—up from $79,000 in 2021. Just 6M renters meet that threshold, underscoring how far homeownership is slipping out of reach for many.

Creditworthiness is also under pressure. The recent end of a federal pause on reporting student loan delinquencies led to a spike in missed payments, pushing the delinquency rate from 1% to 8%. Around 2.4M affected borrowers who previously qualified for mortgages no longer do, per the Federal Reserve Bank of New York.

What’s Next

Unless mortgage rates fall meaningfully or home prices correct sharply, the shift from owning to renting appears locked in for now. The long-term risk for landlords is that a surge in affordability could trigger a mass migration back to homeownership.

But in today’s environment, it’s apartment owners—not homebuilders—who are positioned to win in America’s broken housing market.