A total of 2.07 million first-time home buyers purchased single-family homes in 2018, up less than 1% from 2017 but the most since 2006, according to a report out Thursday from Genworth Mortgage Insurance, an operating segment of Genworth Financial, Inc. (NYSE: GNW).

An NAHB Economics poll conducted during the first quarter of 2018 found that 17% of American adults plan to buy a home within the next 12 months.
Courtesy Adobe Stock/Monkey Business Images

"The first-time home buyer market once again outperformed the broader housing market, recording its best purchase year since 2006 and regaining its pre-Housing Crisis level," said Genworth's Chief Economist Tian Liu. "At the same time, first-time home buyers are not immune to declining affordability, as their number declined nationally and in 35 states in Q4. First-time home buyers responded to declining affordability by taking a wait-and-see approach and opportunistically looking for lower-priced properties."

Liu continued, "Looking ahead, some first-time home buyers may be in fear of overpaying during the slowdown which could prolong the slowdown. However, the improved housing affordability in the past two months, if sustained, may boost momentum by the 2019 spring selling season, which could, in turn, lead to better housing data and lift confidence in the market. In the longer term, the current slowdown should serve to remind the housing industry and policymakers of the importance of housing affordability. The housing industry should also take note of the resilience of the first-time home buyer market in the downturn and offer more products and services to meet their needs."

4Q'18 Overview

  • Fewer first-time home buyers amid housing slowdown: 480,000 single-family homes were purchased—a decline of 3% from a year ago, compared to a 1% increase in Q3; The first-time home buyer market was more resilient during the housing slowdown compared to repeat buyers, which saw a decline of 7%
  • Larger Share: First-time home buyers accounted for 39% of single-family homes sold in 2018, up from 31% in 2014; 56% of new purchase loans in 2018, up from 52% in 2014; Highest level of first-time home buyer mix in the housing market since 2000
  • Diverging Trends Across States Continue: The slowdown in Q4 is reflected by a large increase of states reporting lower numbers of home buyers: 19 states in Q3 compared to 35 in Q4
  • Affordability Continued to Deteriorate: Housing affordability deteriorated by 17% in Q4 from a year ago, due to rising interest rates and higher home values
  • Slowdown Intensified: Home buyers have reacted to the worsening affordability by putting off buying and looking for lower-priced homes, which resulted in lower prices for first-time home buyers in Q4. This point is illustrated by lower prices paid by about 80% of all home buyers and 70% of first-time home buyers compared to a year ago. The median price paid by first-time home buyers declined by 2% year-over-year to $233,600.

Full Year '18 Overview

  • Historically Strong First-Time Home Buyer Market: 2.07 million first-time home buyers purchased single-family homes in 2018, up less than 1% from 2017, and the most since 2006
  • A First-Time Home Buyer Cycle: First-time home buyers accounted for 99% of the growth in home sales between 2014 and 2018. They are reshaping the demographics by moving from states such as California, Illinois, Massachusetts, Michigan, Louisiana, New York and Texas, and into states such as Arizona, Florida, Georgia, Delaware, Idaho and Nevada
  • Low Down Payment Mortgages Still Preferred: Financed 1.67 million (or 80%) first-time home buyers in 2018, an increase of 50% since 2014
  • Private Mortgage Insurance (PMI) Most-Sold Product: 682,000 home buyers used conventional mortgages with PMI to finance their first home purchase in 2018, 53,000 more than the FHA, historically the largest first-time home buyer product; PMI industry now serves twice as many first-time home buyers compared to 2014

The full report can be downloaded here.