The percentage of home sales to first time buyers fell for the first time since 2014, according to Genworth Mortgage Insurance’s First-Time Homebuyer Market Report for the first quarter of 2018. The report aggregates all publicly-available government data and proprietary mortgage industry data into one dataset.
Among its findings:
· First-time home buyers purchased 411,000 single-family homes, a decline of 2% from the first quarter of 2017.
· First-time home buyers accounted for 37% of single-family homes sold and 57% of purchase mortgages financed.
· Home sales without financing (all-cash transactions) and purchase loans made by investors were up 11,000 units, or 3% from a year ago suggesting an increase in speculative demand and otherwise a more competitive environment among potential home buyers.
· For the first time since the first quarter of 2012, home sales grew faster than home purchase originations. The number of purchase loans for the purchase of owner-occupied homes were down 2% from a year ago, while home sales stayed flat.
· In the first quarter, 81% of first-time home buyers used low down payment mortgages, while only 19% used high down payment mortgages.
· Low down payment mortgages financed 332,000 home sales to first-time home buyers, a one% decline from a year ago, and represented 69% of purchase loans originated, the highest since the first quarter of 2010.
· Conventional loans with mortgage insurance financed 127,000 home sales to first-time home buyers, an 18% increase from a year ago, marking the 27th consecutive quarter of growth for the mortgage insurance industry and the best first quarter since 1995.
· Among new single-family homes, home builders reported rapid sales growth in homes priced between $250,000and $300,000, an increase of 17% from the first quarter of 2017 (the median first-time home buyer price range is $250,000 and below).
Here’s Genworth’s outlook:
· Higher mortgage rates have increased the cost of financing, and may have contributed to lower home sales.
· Despite the increased home building activities at the “lower” end of the market, the supply response has been insufficient in easing inventory pressure.
· Contrary to most forecasts, we believe that strong first-time home buyer demand and an insufficient supply increase will keep home prices growing at their current pace.
· Housing supply will continue to expand to meet the strong first-time homebuyer demand. In addition to new construction, we will also likely see the conversion of rental units back to owner-occupied properties, lower vacancy rates, and increased remodeling activities.
Tian Liu, chief economist for Genworth Mortgage Insurance, issued the following analysis: “This quarter’s decline in first-time home buyer sales reflects a slowdown in cyclical momentum as the first-time home buyer market approached its historical norms. It also reflects a shortage of available homes priced at or below the median first-time home buyer market price of $250,000. While for the first time since 2014 first-time home buyer demand is slightly easing, supply pressures will continue to drive price appreciation and freeze out a large%age of the 2.7 million first-time home buyers who are still missing from the market.
“We believe that the housing market is becoming overheated, which is supported by this quarter’s growth of all-cash transactions and purchase loans made by investors, and the corresponding decrease in first-time home buyers. It is becoming increasingly common to see multiple offers submitted on a property, which results in purchase prices surpassing listing prices, as well as inflated home prices, making cash offers more coveted. Because first-time home buyers prefer using debt over cash when purchasing a home, this quarter’s surge in cash purchases is a competitive disadvantage to them and helps explain their pull-back.
“Despite the current headwinds, we have begun to see an acceleration of homes built at slightly lower price points, a change from the home building at higher price points we have been seeing. We see this as a positive market change that will support an increase of first-time home buyer purchases and lead to fewer buyers being priced out of the market. If this trend gains meaningful traction, new construction will play a larger role in meeting first-time homebuyer demand.
“More broadly, we are not overly concerned by this quarter’s slow-down in first-time home buyer purchase growth and remain optimistic that this demographic will continue dominating the mortgage market and growing its market share. To address the housing supply inadequacies, we call on policymakers to encourage production of new homes at lower price points by abstaining from regulations that restrict affordable housing (zoning), access to low-cost building supplies (tariffs and quotas), and labor supply (immigration).”
