In an improving market for home construction, the best-positioned home builders are those geared toward first-time buyers, according to one analyst.

"We like the group at large, to be honest with you," John Lovallo, US homebuilders and building products equity research analyst at UBS, told Yahoo Finance (video above). "We're really focused more on the entry-level, first-time builders, so that would be a D.R. Horton (DHI) and Meritage Homes (MTH), for instance."

Homebuilders are seeing sunnier days after a months-long downturn, with homebuilder confidence in May hitting the highest level in 10 months. Builders can thank increasing demand and lower supply.

Citing "a very interesting dynamic in the market," Lovallo noted the low number of homes for sale right now — averaging only 2.8 months of existing inventory. First-time buyers are an increasing share of the market, but they are encountering a supply dominated by old and costly homes, making newer homes an even more attractive option.

"While demand has certainly slowed, the demand that is out there is all being channeled toward these public homebuilders that, oh by the way, can offer financing," Lovallo said. "So no one is paying 7% out there."

The stiff supply is what’s keeping home prices steady, too, he said.

“On the existing home side… there's just not much out there,” Lovallo said. “So I think buyers that are looking for a home at this point are probably more inclined today than at any point in history to have to focus on a new home.”

According to the National Association of Home Builders, new home sales increased by over 4% in April. Beyond looking for new homes, many first-time buyers are at the prime age of homebuying, which Lovallo estimated was between 30 and 35 years old. Buyers at this age are anxious to move into homes after marrying or having children, making them more flexible about the finer details of the home itself.

“People want to move into homes and they're going to do what they can to make that happen,” he said.

This dynamic makes homebuilders developing with first-time buyers in mind especially well-positioned in the Sunbelt, where Americans are flocking to buy homes due to better weather, lifestyle, or job changes. First-time buyers in that region are “more willing to make concessions,” Lovallo said, such as buying a home that’s smaller or further from a city.

Some Sunbelt states like Texas and Florida are also more friendly for builders because of space.

"You're seeing very little infill building. You're seeing them move out to the periphery of markets where there is open space and where they can develop these very large communities," Lovallo said, "and, by the way, help the math pencil [out] for the homebuyer."

Jared Mitovich is a writer at Yahoo Finance. Follow him on Twitter @jmitovich

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