Genworth Releases Second Report Edition to Track the Entire First-Time Homebuyer Market
I am pleased to release Genworth Mortgage Insurance’s First-Time Homebuyer Market Report for the second quarter of 2017 (See Press Release, Fact Sheet, and Full Report). This is the only economic series focused on first-time homebuyer market size, and we see it as an important addition to housing statistics – on par with housing starts, home sales, and home prices. It answers the question – how many homes are sold to first-time homebuyers in a given quarter? Using 20.9 million first-time homebuyer records from mortgage origination data, this report spans two housing cycles over the past 24 years. We believe this data makes the first-time homebuyer market more visible and lends a different perspective on the housing market and the economy.
What does it tell us about the current housing cycle?
I often get the question: why is it useful to have data on the first-time homebuyer market? To answer this, one must begin with the new insight that the first-time homebuyer market largely defines the current housing cycle. This means that the first-time homebuyer market is growing much faster than the overall housing market. This trend first emerged in 2015, and growth in the first-time homebuyer market over the last two years has represented 85 percent of growth in single-family home sales. In the second quarter, growth in this market was larger than the growth in the overall housing market because of a contracting repeat homebuyer market.
This has important implications across the entire housing market. It means that homebuilders should produce more single-family homes under $250,000 – a price point at the upper end for many first-time homebuyers. Production only began increasing this year after moving sideways in the past few years, leading to tightened housing supply, historically low vacancy rates, and an acceleration in home price growth. While many forecasters are predicting a slower pace of home price growth, we see that scenario as unlikely. This year, homebuilders are expected to add 20,000 – 30,000 units in the price range affordable to first-time homebuyers, still well-below the increase in first-time homebuyer demand (around 100,000) in the first half of 2017. In our inaugural report last quarter, we estimated that three million first-time homebuyers have been missing from the housing market since 2007. Many of them will return over the next few years. This tells us that the opportunity from first-time homebuyers will continue for a number of years, and that homebuilders will continue to struggle to meet demand.
Are we in a housing bubble?
The expectation of continued strong home price appreciation begs the question if we are in a housing bubble. The answer is no for now since it is clear that the housing market has been driven by first-time homebuyers. The culprit for the previous housing boom and asset price bubbles, namely speculative demand, has been absent from the housing market.
Is the increase in the mix of low down payment mortgages a sign of loosening in lending standards?
No. The mortgage industry has recently taken notice of the increase in the mix of low down payment loans in the mortgage market. What has been missing from the commentary is that the increase is driven by a rapid recovery in the first-time homebuyer market. The main hurdle for potential first-time homebuyers is not payment affordability, but down payment affordability. Therefore, the expansion of the first-time homebuyer market drives the market for low-down payment mortgages. Indeed, the story in the homebuilding industry and in the mortgage industry are the same – first-time homebuyers are back, and they will define the housing market.
What are the implications beyond the housing market?
We expect the expansion in the first-time homebuyer market to have significant impact on the rest of the economy. First-time homebuyers will lead to an acceleration in the build-up of mortgage debt, which is the largest segment of household debt. By testing investor appetite for mortgage debt, first-time homebuyers will likely add volatility to the mortgage-backed securities market, and complicate the Federal Reserve’s effort of unwinding its balance sheet.