Zillow predicts a big year for home buyers in 2015, with more millennials entering the market amid rising rents. Zillow’s annual housing predictions also identify the five best housing markets for first-time homebuyers this coming year.

2015 Predictions

1. U.S. rents will outpace home values by the end of the year
2. Builders will begin constructing more, less expensive homes
3. Millennials will overtake Generation X as the largest group of homebuyers
4. Homebuyers will have more negotiating power in 2015

2015′s Best Housing Markets for First-Time Homebuyers

First-time homebuyers will be a critical part of the housing market next year, and certain markets will have more favorable conditions than others for buyers looking for that perfect entry-level home¹. Markets most favorable to first-time buyers are those with strong income growth among 23-34 year olds, significant growth in the number of entry-level homes on the market and home prices that won’t take a big chunk out of buyers’ paychecks.

Zillow predicts the best markets for first-time buyers in 2015 will be:

Nationwide, home values will increase by 2.5 percent while rents will grow around 3.5 percent.
“Home value appreciation will continue to cool down, from roughly 6 percent now to around 2.5 percent by the end of 2015. But rents will see no such slowdown, and will continue to grow around 3.5 percent annually throughout 2015. As renters’ costs keep going up, I expect the allure of fixed mortgage payments and a more stable housing market will entice many more otherwise content renters into the housing market.”
– Dr. Stan Humphries, Zillow chief economist

Builders will begin constructing more, less expensive homes.
“In recent years, home builders seem to have made a conscious decision to sell fewer, more expensive homes instead of more, cheaper homes. In 2015, that will change, especially as demand moves toward the lower end of the market as millennials begin buying en masse. New home sales volume has been stuck around the 450,000 per year mark. In order to break out and get that number above 500,000, builders are going to have to start to build cheaper homes, which will help to narrow the price gap between new and existing homes and contribute to more rapid inventory gains.”
     – Dr. Stan Humphries, Zillow chief economist

By the end of 2015, millennial buyers (under the age of 35) will become the largest group of buyers, overtaking Gen X (35-50 years old).
“Roughly 42 percent of millennials say they want to buy a home in the next one to five years, compared to just 31 percent of Generation X, and by the end of 2015 millennials will become the largest home-buying age group. The lack of home-buying activity from millennials thus far is decidedly not because this generation isn’t interested in homeownership, but instead because younger Americans have been delaying getting married and having children, two key drivers in the decision to buy that first home. As this generation matures, they will become a home-buying force to be reckoned with.”
   – Dr. Stan Humphries, Zillow chief economist

In general, buyers will get back more leverage in the market.
“Since the recovery began in earnest in late 2012, buyers have really taken it on the chin, forced to contend with low inventory, tight credit, bidding wars and intense competition from investors and all-cash buyers. But next year we’ll start to see things really turn around. More inventory will continue to come on line, putting the competitive pressure on sellers for a change. This more balanced market will be smoother sailing for everyone, both for buyers in search of a competitive advantage, and for sellers who turn around and become buyers themselves.”
     – Dr. Stan Humphries, Zillow chief economist