The COVID-19 pandemic pushed the U.S. economy into the sharpest recession on record in March. The housing market also began correcting in April, resulting in an 18% decrease in the number of first-time homebuyers in the second quarter compared to the first quarter. A quick rebound in June moderated the market decline.
Geographically, the COVID-19 pandemic impacted different geographies differently. States with more infections, states that implemented more comprehensive shutdowns, and states with greater economic exposures to impacted industries such as travel, tourism, hospitality, education, and energy saw a bigger hit to their first-time homebuyers market in the second quarter. Hard-hit states included New York, Michigan, Massachusetts, and Pennsylvania. But these states also reported stronger rebounds in May and June, based on rate lock data.
Overall, the housing finance system was able to maintain credit availability for first-time homebuyers during the COVID-19 pandemic despite the enormous challenges. The percentage of home sales to first-time homebuyers did not decrease from pre-COVID-19 levels, and the percentage of first-time homebuyers using low-down payment mortgages increased to 83%, which is higher than the historical average. The private mortgage insurance industry played a significant role in maintaining credit availability, financing over 200,000 first-time homebuyers, or almost four out of every ten. Conventional mortgages backed by private mortgage insurance was the only low-down payment mortgage product to finance more first-time homebuyers than a year ago. Credit availability did contract more noticeably for FHA loans and conventional loans not backed by Fannie Mae and Freddie Mac. This may have had a bigger impact on borrowers with weaker credit histories. The main reasons that the housing finance system has largely maintained credit availability to date include a focus on prudent underwriting, having adequate capital in the financial system, a significant presence for the agency market that will take credit risk during periods of market stress, and continued investment in technology to make the industry capacity more elastic.
The quick and strong rebound in the housing market was a surprise. While the recovery has been very broad-based with no decreases in any market segment, the strongest rebounds have been by repeat buyers and in areas that were most impacted. The latest data for both first-time homebuyers and repeat buyers show that both groups are buying homes at a faster pace than in the same period last year. This rapid recovery also could mean that the housing market could reach a new normal quickly, as growth has already slowed in July.
There is still much uncertainty about the COVID-19 pandemic and its impact on both the economy and the housing market. One big question is if there will be any permanent changes in where people live and the kind of homes they want as a result of the COVID-19 pandemic. The evidence so far is mixed. The rapid rebound in the housing market, especially in areas hit hard in April suggests limited changes to homebuyer behavior. Other trends, such as a stronger rebound for repeat homebuyers and strong demand for remodeling and renovation, suggest a deep shift in preferences and needs on the part of existing homeowners.