3 ways first-time homebuyers are navigating a hostile market that's increasingly inaccessible to the average American

• It's never been tougher for first-time homebuyers to break into the market.
• Supply shortages, high mortgage rates, and skyrocketing prices are creating barriers to entry.
• Prospective homebuyers are downsizing, house hacking, or buying fixer-uppers as a result.

It might seem cliché to reminisce about the good old days, but when it comes to the housing market, things arguably were better "back then."

In the 1940s, for example, there was an ample supply of reasonably priced starter homes for first-time homebuyers. A starter home during that time typically cost between $8,000 and $12,000, or between $109,000 to $168,000 in today's dollars, according to Realtor.com.

Fast forward to today, where affordable new home construction has declined, mortgage rates are stubbornly above 6%, and the average home costs $357,469, according to Zillow data. It's no wonder that the share of first-time homebuyers in the market has shrunk to a historic low of 24%, while the age of first-time buyers has hit a record high of 38 years, according to the National Association of Realtors.

"There are a lot of financial barriers to entry for younger households," Danielle Hale, chief economist at Realtor.com, said in an interview. "As a result, we see fewer first-time home buyers. They are a smaller share of the market, and the number of home sales has been historically low in recent years."

Despite the tough times, there are some positive inklings for the housing market heading into next year: lower interest rates and increased inventory could be on the horizon in 2025. Still, housing experts are unsure if the market will significantly improve for first-time buyers in the near future.

In the meantime, first-time homebuyers seem to be making the most out of the circumstances and are getting creative with the following three homebuying habits.

Starting small

One of the most straightforward ways that homebuyers are reducing costs is by buying a smaller house. That's how Symone', a 32-year-old user-experience content designer who asked not to share her last name for privacy reasons, was able to purchase her first home in 2024: a two-bedroom, 1,300-square-foot single-family home in the Raleigh, North Carolina metro area.

Buying a house in one of the most popular real estate markets in the country wasn't a walk in the park for Symone'. Competition was fierce and inventory was limited, making it difficult to find affordable units, Symone' told BI.

"I would go to sleep basically on my phone, scrolling on Zillow trying to find something," she said.

Her biggest takeaway from the homebuying process was that she wouldn't get everything on her wish list. Symone' prioritized the urban location and made concessions on the size — her house is much smaller than the median American home size of 2,000 plus square feet, according to Bankrate.

"That's where I compromised on this house. I love it because it's a new build, and it has all the finishes that I wanted, but I definitely don't have as much storage in this house," Symone' said.

House hacking

When Tom Brickman bought his first house, he lived in the upstairs unit and rented out the downstairs unit to a tenant.

That was back in 2009, but house hacking, or renting out part of your home, has only increased in popularity as a way for first-time homeowners to get their foot in the door. The extra income from rent can help the owner pay off the mortgage on the house and build up home equity.

"I think it's definitely gained more popularity as things continue to get more and more expensive," Brickman said.

Danny Gardner, senior vice president of Mission and Community Engagement at Freddie Mac, agrees. Gardner believes that increasing living costs are leading people to become more open to nontraditional home ownership options such as sharing space.

In the twenty-plus years since Brickman's first home purchase, he's gone on to buy more houses and become a successful real-estate investor who provides coaching services to new homeowners. House hacking with two tenants was how one of Brickman's clients was able to afford a condo while working as a server in Los Angeles.

House hacking can provide a point of entry into the market, especially for otherwise prohibitively expensive markets such as Los Angeles, but Brickman cautions that it's not for everyone. Cohabiting with a tenant can create complications: when Brickman first started out, he encountered lifestyle conflicts with his downstairs neighbor and had to scramble for money to fix a broken furnace.

"It's inconvenient," Brickman said of house hacking, "but I could afford a much nicer house by doing that."

Buying a fixer-upper

Another way first-time homebuyers are combatting the rising cost of housing is by buying fixer-uppers. These houses are often available at below-market prices and can be a great deal — if you're willing to put in the work and money to invest in renovating.

According to Hale, fewer affordable starter homes are being built as builders have trended towards constructing larger, more expensive homes in recent years.

As a result, those looking to buy an accessible first-time home might not have a lot of new options to choose from.

"A lot of lower-priced homes are lower priced because they're older and could require work," Hale said.

Prospective homeowners might choose a fixer-upper due to lower competition. Brickman went this route a few years ago.

"I was just tired of getting outbid, so I took a house that needed more work than what it was needed," Brickman said of his experience buying a fixer-upper in 2022.

However, the lower price of a fixer-upper can come at the cost of the convenience of a new build, as it's difficult to accurately predict costs no matter how diligently you budget. Another one of Brickman's clients was hit with thousands of dollars of unexpected costs on a fixer-upper after an initial inspection failed to catch an issue with a retaining wall on the property.

The housing landscape is undoubtedly tough to navigate today, but until affordability improves, prospective homeowners are coming up with workarounds to get a piece of the American dream.

"Sometimes you have to get a little creative to get your foot in the door," Brickman said.