Starter Or Forever Home? First-Time Buyers And Homeowners Weigh In

Big plans often come with a home purchase. For some, those plans mean staying in the home for a few years until their income or family grows, while others plan to put down roots and grow their life there. But, plans often change. Sometimes what people think will be forever turns out to be a jumping off point to something better. Other times, the place home buyers plan to live for only a few years becomes a place they can’t live without.

With all the recent reports on growing interest rates and higher home prices, one may wonder how current market conditions have affected the views of current homeowners and buyers alike. Have current owners jumped at the chance to sell what they thought would be their forever home to get a higher return on investment? Are current first-time buyers planning their length of stay based on rates? Are they even continuing to look in this market?

To see how Americans are approaching home buying and ownership, Rocket Homes^SM surveyed 1,500 first-time buyers and current first time homeowners who currently still live in the first home they ever purchased. The latter group is described as “first-home owners” throughout the remainder of this article.

Most Current First-Home Owners Haven’t Changed Their Minds

There are many reasons a person purchases a specific home – whether they see it as a starter home or forever home. Of those respondents who were first-home owners, the top three reasons they chose their first (and still current) house were:

• Location (21.9%)
• Most affordable option (18.3%)
• Good investment opportunity (15.6%) 

Affordability being a top reason for purchasing a home may explain, in part, why 2005 was the average year respondents bought their first house. As employment continued to grow and interest rates remained below 6%, affordability was a major contributing factor to housing growth that year. According to HUD’s 1^st Quarter Market Conditions Report, the homeownership rate was at 69.1%, falling just below record levels.

Though 2005 was the average, some respondents purchased their home as far back as 1970, having lived in their first home for more than 50 years.

Just over half of first-home owners (51.4%) originally purchased their home as a forever home. The remaining 48.6% originally purchased their home as a starter home. The study split these groups up to see if their feelings about their residence have changed since they originally bought it.

First-Time Homeowners Who Originally Bought Their Home As A Forever Home

Of those who bought their home as a forever home, only 11.2% have changed their mind and now consider it a starter home. The top three reasons people in this group changed their minds were:

• They can afford to upgrade their home (27.5%)
• Their family has grown (20%)
• They no longer like the location (15%)

First-Time Homeowners Who Originally Bought Their Home As A Starter Home

For some, their starter home ended up placing a permanent address in their hearts. Of first-time homeowners, 22.1% of people who bought their home as a starter said it has become their forever home. The top reasons they gave for changing their minds were:

• Affordability (28.3%)
• They don’t want to move (16.7%)
• They’re close to family (10.8%)
• They grew to love their home (10.8%)

Despite higher home prices and increasing interest rates, only 2.5% said the reason their starter home has become a forever home is because of the current housing market conditions.

Of course, there are those who haven’t changed their mind – the majority, actually – and still consider their starter home as such. On average, those homeowners believed they’ll buy their forever home in the next 5 – 6 years. However, an overwhelming number (71.9%) said they would also be okay if their current home became their forever home.

The survey found that most homeowners hadn’t changed their minds about whether their first home was a starter or forever home. And of that group, those who bought a forever home versus those who bought a starter home was almost split 50-50. However, when current first-time home buyers were asked about what type of home they were looking for, the group was a little more skewed – but not by much.

First-Time Home Buyers Are Leaning Toward Finding Their Forever Home

While there’s a perception that higher rates and home values are stopping people from buying a forever home, the survey found that more current buyers are looking for a place to settle down. Of first-time home buyers currently looking for a home, 56.8% are looking for a forever home instead of a starter home. The main reason they were looking for a forever home was because they didn’t want to move again. That’s followed by the fact that they didn’t see their lives changing much in the future. That may be, in part, because they’ve already experienced the milestones – like getting married or having children – that typically tend to prompt a move. Of the 52.3% of respondents who were planning on cohabitating with their significant other or their significant other and children, almost 70% were more likely to be looking for a forever home.

The 43.2% of first-time home buyers looking for a starter home said they planned to live in their first home for 4 – 5 years. The main reasons for wanting a starter home versus a forever home were:

• Affordability (32%)
• They’re single/not married (27.4%)
• They plan to extend their family in the future (19.3%)
  

Current First-Time Home Buyer Sentiment Is Mixed

On average, new home buyers in this survey started to consider buying a home 7 – 8 months ago. This would be around May – June 2022, at the peak of the real estate market boom, when mortgage rates were just starting to climb from historic lows. On average, survey respondents started seriously searching about 5 – 6 months ago, while interest rates were still climbing, and the market was still competitive. A real estate situation that lasted longer than expected has caused a mix of emotions from home buyers. The most identified feelings were frustration, stress, anxiety, excitement, happiness and fear.

When asked, “Has your search for a home brought up any emotions?” respondents gave some of these answers:

“Uncertainty is the first response. I hear a lot about instability in the housing market from multiple sources – including news online, plus input from family members. I'm kind of pessimistic at times [and] optimistic half the time.”

“Stress of moving and depression of leaving the place I call home. Excitement and yearning for a new beginning.”

“Excitement, to finally own something!”

“[Buying a home] makes me worried because with the economy and everything it is very hard to afford a home.”

“I have severe anxiety about a home purchase. It's been frustrating so far. I like one thing in this house, one thing in another house and so on.”

It’s easy to see why finding their home can feel frustrating for first-time home buyers – especially when one home doesn’t quite meet all their expectations. And what exactly are first-time home buyers looking for?

On average, most first-time home buyer respondents were looking for 3-bedroom homes, and their top 5 non-negotiables were:

• Location (52.8%)
• Number of bedrooms (45.7%)
• Number of bathrooms (42.3%)
• Updated kitchen (38.8%)
• Inspection of the home before closing (34.5%)

Current Rates Aren’t Stopping Most First-Time Home Buyers

Only a quarter of first-time home buyers are holding out for a lower interest rate and only three respondents indicated that it has caused them to pursue buying a home without a mortgage. However, most respondents aren’t letting rates stop them from purchasing their first home – though they may tweak their budgets or financial habits during the process.

Only 10.5% of first-time home buyers have reduced their housing budget and another 34.3% planned to improve their financial health – such as improving credit, paying down debt or increasing income – to get better terms, which include lower rates. Others were even less affected, as 13.5% said they knew what current rates were and planned to buy a home regardless while 13.2% confessed they didn’t pay attention to rates at all.

Bottom Line: Affordability Is Important, But Isn’t A Nonnegotiable

In general, while the perception may be that current market conditions may prompt homeowners to sell and home buyers to be wary, they have only swayed a relatively small amount of people. Most of those who still live in the first home they bought and consider it their forever home, still feel that way. The same goes for those who considered their current home a starter.

Just as it was with first-time home buyers of the past, current buyers see affordability as an important factor in choosing a home and deciding how long to stay in it. However, it isn’t the only factor. And many current first-time home buyers are finding ways to deal with current market conditions and press on. Others – a little over one quarter – are either aware of rates and not spooked, or not paying attention to those numbers whatsoever.

Methodology

To understand the perceptions of current and future first-time homeowners, Rocket Homes surveyed 1,500 American adults who were 23 years of age or older. Respondents were split between 60% that currently own and live in their first single-family home and the other 40% not being homeowners but currently looking to buy their first single-family home. Any respondents who rent, live in a multifamily home or are homeowners that do not own or live in their first home purchased were removed from the survey. Current first-time homeowner respondents were asked about their views on starter and forever homes, as well as what caused them to keep or change their views since originally purchasing the homes. Current first-time home buyer respondents were asked about their plans for purchasing a home. This survey was conducted January 25, 2023.