The volume of first-time buyers’ loans rose 14% year-over-year, up to about 165,000 first-time home buyers in August 2016 from about 145,000 first-time home buyers in August 2015, based on the agency loan volume data analyzed and presented by Edward Pinto and Tobias Peter for the “First-Time Buyer Mortgage Share and Mortgage Risk Indices” presentation by the AEI International Center on Housing Risk.
The Agency First-Time Buyer Mortgage Share Index, which measures the share of all agency loans taken out by first-time home buyers, fell by less than a percentage point year-over-year, down to 56.2% year-over-year from 56.7% in August 2015.
First-time-buyer volume has risen 39% over the past two years, between August 2014 and August 2016. The share of agency loans taken out by first-time home buyers rose by 2.5% during the same period.
The steady rise in first-time buyer volume and flattening of the first-time buyer market share year-over-year can be explained by the expansion of the housing market during this period. Agency purchase loan volume rose 15% between August 2015 and August 2016 across all groups of buyers.
Out of these total volume of first-time home buyers who took out agency loans in August 2016, 71% had made down payments of 5% or less. 27% had a debt-to-income ratio greater than the QM limit of 43%. 21% had subprime credit, or a credit score below 660, and 97% had 30-year mortgages.
53% of loans taken out by first-time home buyers in August 2016 were defined as subprime or high risk, with an MRI above 12%, down from 54% in August 2015. Out of the first-time home buyer loans given by the Federal Housing Administration, 89% were subprime or high risk in August 2016, up from 87% in August 2015. (As of August 2016, 82% of FHA home loans are given to first-time buyers, and 38.7% of all first-time buyers’ loans were FHA loans.)
The Agency First-Time Mortgage Risk Index stood at 15.6% in August, relatively stable compared to a year earlier. This index is 6.4% higher than the MRI for repeat buyers, and 0.4% wider than the gap between the two indices one year earlier. AEI attributes the flattened FTMRI to a rising share of lower-risk GSE loans in the total volume of first-time home buyers’ loans.
AEI does not believe that the recent rise in conforming loan limits will have any benefit for “the vast majority” of first-time home buyers. Given the current seller’s market, Pinto and Peter believe that the increased conforming loan limits will increase borrowing, increase house prices, and shift market share away from private lenders and toward GSEs.
