First-Time Homebuyer ‘No Longer Cyclically Depressed’

Genworth Mortgage Insurance, Richmond, Va., said first-time homebuyers are getting off the couch and jumping feet-first into the market.

The company’s quarterly First-Time Homebuyer Market Report (https://miblog.genworth.com/wp-content/uploads/2018/02/FTHBMarketReport.0218.Final_.pdf) said first-time buyers are no longer “cyclically depressed” and are no longer waiting to get into the market.

“Growth rate has moderated and will likely continue,” the report said. “Housing is a cyclical market with many ups and downs; this is no different for the first-time homebuyer market segment.”

The report said over the last 24 years, an average of 1.8 million first-time homebuyers per year purchase homes. Years 2007 through 2015 were a depressed era for the first-time homebuyer market, with below-average numbers reported.

“Potential buyers deferred homeownership, some even reverted to staying with parents,” said Genworth Chief Economist Tian Liu. “However, it has become clear in the past three years that some potential buyers have decided the wait is over. The millennial generation is starting to reach the age for starting families and buying homes. The strong job market, rising home prices and historically low interest rates also provided favorable economic conditions for potential buyers. These are the main reasons for the sharp recovery in the first-time homebuyer market since 2014.”

As a result, Genworth said, nearly 2.1 million first-time homebuyers purchased homes in 2017–300,000 more than the historical average. “That is why we believe the first-time homebuyer market is no longer cyclically depressed,” the report said. “The implication is that the growth rate will be more moderate from this point on. First-time homebuyers will continue to maintain an outsized role in the housing market, as housing demand moves from rent to own.”

The report said recovery of the first-time homebuyer market means that they command a larger presence in both the housing market and the mortgage market compared to their long-term average. Historically, 35 percent of home sales and 46 percent of home purchase loans went to first-time homebuyers. In 2017, those numbers were 38 percent for home sales and 56 percent for home purchase loans.

“We expect those numbers to remain elevated compared to the long-term average,” the report said. “While the growth since 2014 has been impressive, there remains a large number of potential first-time homebuyers on the sidelines and they will continue to enter the housing market in the coming years.”

The report also suggested growth in the first-time homebuyer market means low down-payment mortgages will continue to be an important part of the mortgage market.

“Down payment has always been the biggest hurdle facing potential first-time homebuyers,” Liu said. “Low down payment mortgages allows these buyers to afford entry-level homes using a small amount of savings. In the past three years, 79 percent of first-time homebuyers have relied on low down payment mortgage products. We expect that trend to continue with the low down payment mortgage market growing with the first-time homebuyer market. Private mortgage insurance is expected to become the leading source of financing for first-time homebuyers as government lending programs step back.”