Introducing Genworth’s First-Time Homebuyer Market Report
I am pleased to introduce Genworth Mortgage Insurance’s new First-Time Homebuyer Market Report (See Fact Sheet, Full Report), the first economic series focused on first-time homebuyer market size. It answers the question – how many homes are sold to first-time homebuyers in a given quarter? Using more than 20 million first-time homebuyer records from mortgage origination data, this report spans two housing cycles over the past 24 years. We believe this data will make the first-time homebuyer market more visible to housing industry participants and policymakers.
There are four major takeaways:
- First-time homebuyers have been the largest growth driver in the housing market since 2014, and that trend is continuing into 2017;
- The Housing Crisis has frozen around three million first-time homebuyers from the housing market;
- Low down payment mortgages are the preferred product for first-time homebuyers;
- The Government has a much higher presence in the first-time homebuyer market today than before the Housing Crisis.
This post will discuss the first point.
The first-time homebuyer is a major buyer segment in the housing market, representing the shift in housing demand from renting to owning. While its importance has always been well understood in the industry, there has not been a real-time, comprehensive, and long-running data series to track it. That is why I believe the result of the study showing that the surging first-time homebuyer market accounting for 85 percent of the overall increase in home sales over the past two years will be a big surprise to the housing industry. As a result of this surge, the percentage of homes sold to first-time homebuyers increased by six points from 31 percent to 37 percent. In 2016 alone, first-time homebuyers purchased two million units of single-family homes. That trend is continuing into 2017. In the first quarter, 424,000 single-family homes were sold to first-time homebuyers – the best first quarter since 2005. Compared to a year ago, the first-time homebuyer market increased 11 percent, and again exceeded the six percent growth rate for home sales.
Low down payment mortgages have always served the need of first-time homebuyers. It is therefore not surprising that the surge in the first-time homebuyer market in the past two years was accompanied by a sharp increase in the low down payment mortgage market. Between 2014 and 2016, 89 percent of the increase in the first-time homebuyer market came from homebuyers using low down payment mortgages. FHA loans, conventional loans with private mortgage insurance, and VA loans accounted for almost all of the increase in the low down payment mortgage market.
The surge in the first-time homebuyer market has had a transformative impact on the housing market by tightening housing supply and accelerating home price growth. Between 2014 and 2016, the monthly inventory of existing homes for sale decreased from 5.2 months to 4.4 months; while growth in the Federal Housing Finance Agency’s purchase home prices accelerated from 5.4 percent to 6.2 percent.
Homebuilders have not been able to fully participate in the upswing in the first-time homebuyer market in the last two years, as homes priced below $300,000 were either flat or down. But this trend may be turning around, as new homes priced in the $200,000-$300,000 range were up in the first four months of the year.
- The first-time homebuyer market saw significant expansion in 2015 and 2016, adding over half a million units in sales to the single-family housing market.
- The mix of first-time homebuyers in the housing market rose by six points to 37 percent. This surge suggests that existing renters are shifting toward homeownership.
- The influx of first-time homebuyers into the housing market helped to expand low down payment lending, which is what most first-time homebuyers use to purchase a home. It also significantly tightened the supply in the housing market, leading to faster home price growth.
- Homebuilders have not been able to ease the pressure on supply, as production in the under-$300,000 price range were flat or down.
Many of these trends appear to be continuing in the first quarter of 2017, with sales to first-time homebuyers again growing at a faster pace than overall home sales. On the supply side, homebuilders appear to be raising production of more affordable homes. This suggests 2017 should be another good year for the first-time homebuyer market.