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What first-time buyers and older homeowners are both deciding on

Digilifetrends Published 3 min read

New research points to an unexpected area of agreement between two very different groups of U.S. homebuyers.

Here’s what first-time buyers and older homeowners have in common

Despite decades of difference in housing experience, first-time buyers and older homeowners are reaching a similar conclusion: buying a smaller home can make better financial sense.

Neighbors Bank, a national mortgage lender, surveyed 1,000 U.S. adults and found that 56% of first-time buyers are considering a home smaller than the one they currently live in.

At the same time, 76% of homeowners age 55 and older said they are considering, or have already made, a similar move.

The findings suggest that affordability pressures are influencing housing demand across both ends of the market.

Cost concerns are pushing first-time buyers to scale down

For many first-time buyers, choosing a smaller home is less about lifestyle and more about what they can afford.

Among those thinking about buying smaller, 64% said they want lower upkeep, maintenance, or taxes; 60% said it is the only way they can afford to buy; and 59% pointed to better overall affordability.

Nearly half, or 49%, said current home prices have made a smaller property more realistic than they first expected.

That shift is also boosting interest in government-backed mortgage programs. Home Possible, HomeReady, and HomeOne loans can require down payments as low as 3%; Federal Housing Administration loans require 3.5%; and U.S. Department of Agriculture loans offer no down payment in eligible rural and suburban areas.

As Mortgage Professional America has reported, the growing importance of down payment assistance has become a central topic in broker conversations with entry-level buyers.

“Even if mortgage rates stay in the low-6% range, weddings and separations, growing families, job moves, caregiving, and downsizing will continue to drive sales activity,” Odeta Kushi, deputy chief economist at First American Financial Corporation, previously said.

For older owners, the big hurdle is losing a low rate

For homeowners 55 and older, downsizing comes with a different concern: surrendering an existing low mortgage rate.

Although 76% said they are considering, or have already completed, the move, 46% are still unsure whether it is worth giving up their current rate.

The mortgage rate lock-in effect has been one of the biggest supply constraints in the housing market, keeping many people who borrowed during the pandemic from moving even when it might otherwise make sense.

Michael A. Harris, president and CEO of United Mortgage Corporation of America, told Mortgage Professional America that rate lock-in is influencing behavior in ways that may not align with long-term financial goals.

“Rate lock-in continues to influence homeowner decisions, particularly among borrowers who secured mortgage rates below 4%,” Harris said.

“The challenge is that the decision is often being made based on the interest rate alone, rather than the homeowner’s complete financial picture.”

With mortgage rates above 7%, Harris was blunt: “A low interest rate is valuable, but it should not become a financial or personal trap. The best mortgage decision is not always the one with the lowest interest rate. It is the one that best supports the borrower’s overall financial goals.”

Among older homeowners considering a smaller place, 65% said they were very or somewhat likely to move within the next 12 months; still, 49% of all homeowners surveyed said they would rather renovate than relocate.

For mortgage brokers, the Neighbors Bank survey suggests a broader client base. First-time buyers need help sorting through loan options and down payment support, while older homeowners need a clear, rate-adjusted look at what moving would actually cost.

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