Urban Institute: Improving Conditions, but Repeat Home Buying Keeps Tumbling


The Urban Institute, Washington, D.C. said total housing market value increased in the second quarter, but noted that repeat home buying continued a nine-year downward trend.

The Institute’s September Chartbook said the total value of the U.S. housing market increased in the second quarter by $372 billion, reflecting an increase in household equity and virtually no change in household debt from the first quarter, bringing the total value of the U.S. Housing market up to $23.5 trillion from $23 trillion.

But the report also noted tight credit is making it hard for homeowners to trade-up and out of their starter homes. UI looked at GSE & FHA loans (which made up the majority of the mortgage market except in 2004-2006) and said starting in mid-2007, the share of first-time homebuyers has been consistently between 50 and 60 percent. Between 2001 and 2007 the share was much lower, with just 40–50 percent of borrowers buying for the first time. A closer examination found while there were the same number of first-time homebuyers in 2001 and 2015–1.3 million–there were about one-half as many repeat homebuyers: 1.8 million vs. just slightly more than 900,000 in 2015.

“Repeat home buying took a big tumble and just kept falling after 2007,” the report said. “And it’s no coincidence that this happened at the same time it started to become really difficult to get a mortgage anywhere in the U.S. and hard to build home equity, thanks to dropping home prices.

The report also noted that the government share of first-lien originations continued to fall, to seven of 10 mortgages, compared to 2008, when the share was nearly nine in 10, but still below five of 10 during the pre-crisis era.

“The GSEs have been able to reduce their footprint mainly because current g-fees are too high relative to the credit risk,” the report said. “And given this positive risk-reward, banks have been finding it more profitable to hold on to higher quality mortgages than sell them to GSEs or to other investors (and forgo the profits).”

“Clearly, we have made great progress in bringing back private capital,” the report said, but suggested more could be done to further reduce the government’s role.

Other report highlights:
–In the first quarter, second liens (like home equity lines of credit) made up a larger share of the $10 trillion outstanding mortgage market then private-label securities (6.2 vs. 5.8 percent) for the first time. In the second quarter, the private capital share fell even further from 5.8 to 5.6 percent while the second lien share remained unchanged at 6.2 percent.
–The first-timers share of all GSE and FHA loans declined from 59 to 57 percent between May and June, 2016. But first-timers have been consistently above 53 percent of the purchase market since the financial crisis. “The real story here is that repeat homebuyers appear to be stuck in their starter homes,” the report said.
–Fewer underwater homes. With housing prices continuing to appreciate, residential properties in negative equity (owe more on their home than it can be sold for) have dropped to 7 percent in the second quarter. Properties very close to negative equity comprise another 2 percent.
–High volatility in GSE spreads. “We’re continuing to see a lot of volatility in the return investors make on GSE credit risk transfer securities,” the report said. “This volatility is a reminder that we need diversification in the way the GSEs share risk if we want a housing finance system in which mortgage rates are stable and credit available through the economic cycle.”

The report can be accessed at http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000944-Housing-Finance-at-a-Glance-A-Monthly-Chartbook-September-2016.pdf.