By Cheryl Weber. In American culture, purchasing a first home carries the cachet of a milestone and conveys a sense of respectability. But what a difference a generation brings. Twenty years ago, baby boomers buying a first home faced mortgage rates of 16 percent and 17 percent. Now, with interest rates in the 6-percent range, a home is easier to come by than ever.

Despite cold, hard demographics, predictions of a falloff in the entry-level housing market have proven false. Most Americans own their first home by the age of 33, notes market analyst Chuck Graham, of Newton Graham Consultants, in Charlotte, N.C. And although the number of 33-year-olds peaked at 5 million in the early 1990s, dipping to about 4.4 million in the past decade, demand has continued apace. One reason for the buoyant market is affordable mortgages, which have allowed builders to reach deeper into the rental market and the next tier of 20-somethings.

First Home Builders of Florida's business has virtually doubled every year since it was founded seven years ago. The Cape Coral-based builder expects to sell 1,600 homes this year, and in the next five years will expand into at least three other Florida locations. Its first-time buyers, which comprise 95 percent of its market, are 21 to 45 years of age and have household incomes ranging from $30,000 to $60,000. "With lower interest rates we've tended to get younger people coming in," says president and CEO Patrick Logue. "People in their real early 20s are qualifying for mortgages, so our lower entry-level business has increased dramatically."

Immigration is another factor in the steady stream of starter-home candidates. "The thing that's surprising about the current generation of first-time buyers is that there are so many of them," Graham says. "Most projections called it the baby bust. But because of immigration, Generation X has turned out to be equal in size to the baby boom."

Those trends, coupled with today's savvy young consumers, mean builders are scrambling to be competitive. And during the next two decades, they will be charged with serving up starter homes for an ever more diverse group of owners. After dominating the market throughout the postwar years, traditional white families will account for less than 30 percent of the 22.2 million new homeowners added by the year 2020, according to "The State of the Nation's Housing," a 2002 study by Harvard University's Joint Center for Housing.

Changing Faces

The rapidly changing complexion of home buyers can be seen in the homeownership figures of just the past few years: The number of U.S. households owning homes reached a record 72.6 million, or 67.8 percent of the total population in 2001, reports Harvard's housing study. That represents an increase of 9.5 million homeowners since 1994, and minorities accounted for 40 percent of the gain. In reality, foreign-born households still make up only 17 percent of all recent first-time buyers. But because immigrants typically buy their first home after 11 years in the U.S., they're poised to play a much bigger role. "We can expect to see more [immigrants] make the move to homeownership as the 10 million immigrants who arrived last decade reach their peak home buying years during the next decade," says Joint Center director Nicholas Retsinas.

And as the number of minority households climbs during the next 20 years -- to almost 41 million -- the number of non-family units is expected to rise with it. By 2020, non-traditional households will number 43 million, contributing to a third of all households. Dallas-based Choice Homes doesn't directly track the demographics of its first-time buyers, which represent roughly 83 percent of its market. But during the past 10 to 15 years, president and CEO Steve Wall has observed an increase in the number of buyers who are single female heads of household. "The idea of the family of four is just not a reality anymore," Wall says. "The fact that people are choosing not to get married, or are divorced, is driving up the number of households."

Builders clearly aren't relying on the proverbial white picket fence to sell homes anymore. For first-home buyers who are single, security systems and low maintenance are the new symbols of psychological well-being. "Security is one of the keys to decision-making for female heads of households," Wall says. The builder offers security systems in every home. It also uses durable exterior materials, such as brick and fiber-cement siding, that owners don't have to paint. Recently, the company has begun building more townhouse communities -- some with lawn service -- where people feel closer to their neighbors. Out of the 4,000 homes Choice Homes closed last year, 200 were attached products, compared to zero five years ago.

Choice Homes' entry-level products range from the $70,000s to the $140,000s. And in its marketing, the builder tries to dispel any first-time jitters about taking on such a large investment. It emphasizes not just affordability, but quality, value, and a worry-free buying experience. "We let prospective buyers know that we work with mortgage and title companies with a proven record for taking care of customers," Wall says, "and that the purchase will be completed in a timely manner and without a lot of surprises."

Changing Values

Generation X expects no less. Logue says his buyers are sophisticated and well aware of the types of financing available to them. "They're better informed now because of all the Internet services and marketing that companies have done, letting them know they can get in for less money down," he says. This group of first-time buyers is still looking for a basic house with enough room for the kids, but they're following move-up buyer trends. At Ryland Homes, in Calabasas, Calif., that translates to a desire for informal space. "It used to be the rule that first-time buyers wanted their formal living room and dining room," says Melissa Bailey, vice president of corporate marketing. "The psychology of it was that they wanted to move into what they thought homes should be -- what they grew up with."

Although the size of Ryland's entry-level homes remains at about 1,500 square feet, the company has tweaked the allocation of space. Floor plans feature openness and flexibility -- a loft that buyers can turn into an extra bedroom, say, or a multi-purpose area where they can put the computer. "Before, they wanted more permanent rooms," Bailey says. "But just five years ago, the number of computers in every household increased. Now everyone is looking for a place to put the computer for the kids and mom and dad." Overall, first-time buyers are more technologically savvy than they were 10 years ago. Ryland offers high-speed cable hookup as standard in areas such as Austin, Texas, and Denver, where the economy is based on high-tech careers -- and as an upgrade in other communities.

First Home Builders' starter houses are getting more stylish. Recently, the builder introduced nine floor plans designed by Bloodgood Sharp Buster Architects and Planners, based in Des Moines, La. "We're trying to value engineer to give more space for the dollar," Logue says. "We've gotten away from high entrances and arched windows to a more Florida style with lanais and shutters. It's a retro style that's really popular right now." Its average home has 1,450 square feet of living area, or a total of 2,100 square feet with the porch and two-car garage.

What's Ahead?

The economy, of course, is a potential dark cloud looming over the low end of the first-time-buyer market. "Banks have been fairly liberal about qualifying people, but because of all the foreclosures and delinquency rates among that population, those numbers may be shrinking," Graham says. "With projections of mortgage rates increasing 100 to 200 basis points, I believe we'll see a contraction in the extreme low end of entry-level buyers in the next 12 months." According to Harvard's housing study, many of the low-income owners have thin equity cushions. As of 1999, 11 percent of the lowest-income owners had less than 5 percent equity in their homes.

For the near future, though, First Home Builders is gearing up to meet the demand. "We thought our maximum market would be 700 to 800 homes a year," Logue says, "but we're at about 1,500 and growing. It's hard to tell the depth of the market; we only seem to underestimate it."

Characteristics of Single-Family Home Buyers
Household Type 1985 1987 1989 1991 1993 1995 1997 1999 2001
Married, no children 33 33 32 34 31 34 37 34 34
Married, children 50 46 47 46 44 45 41 44 41
Single Parent 4 5 6 6 8 6 5 6 6
Single Person 7 8 9 8 10 9 12 11 13
Other 6 8 12 6 7 6 5 5 6
Source: American Housing Survey (U.S. Census Bureau/HUD); tabulations by NAHB
Regional Distribution of Foreign-Born
First-Time Home Buyers Since 1997
(Varies by Race/Ethnicity)
Hispanic Asian Black White Total Native Whites
Total Households 557,959 375,243 91,130 237,199 1,261,531 6,030,709
Northeast 6% 23% 46% 29% 19% 19%
Midwest 9% 15% 2% 18% 12% 28%
South 33% 28% 44% 22% 30% 34%
West 52% 34% 7% 31% 39% 19%
Source: Joint Center for Housing, Harvard University

Learn more about markets featured in this article: Charlotte, NC.