TransUnion: Housing Market to Get Boost as First-Time Homebuyers Rise

The recovering housing market may soon receive a bigger boost, said TransUnion, Chicago. Its analysis projects at least 8.3 million first-time homebuyers to enter the mortgage market between 2020 and 2022.

TransUnion said that number could climb to as high as 9.2 million if economic growth exceeds expectations. Both growth projections mark a significant acceleration from the 7.6 million first-time homebuyers added in the last three-year period (2016-2018).

The analysis, released by TransUnion’s mortgage business unit at the recent Mortgage Bankers Association Annual Convention & Expo, comes at a time when overall home ownership growth has been muted. As of the second quarter, 68.3 million consumers carried a mortgage balance, on par with the 68.2 million observed one year earlier. The totals remain significantly lower than a decade ago, when 73.1 million consumers carried a mortgage balance in Q2 2010.

“While we’ve recently seen a boom in refi activity, actual homeownership rates are down. Challenges have included high home prices, sluggish wage growth and limited housing inventory,” said Joe Mellman, senior vice president and mortgage business leader with TransUnion. “But we may be starting to see daylight as slowing home price appreciation, low unemployment, increased wage growth and low interest rates are helping affordability. As a result, we are optimistic that first-time homebuyers will contribute more to home ownership than at any time since the start of the Great Recession.”

TransUnion conducted a national survey in October of 943 U.S. residents who have never owned a home and expressed interest in buying one in the next three years. These respondents’ top motivations to purchase a home included seeking more privacy (45%) and wanting to build equity/wealth (44%). Less than a quarter of respondents indicated that getting married (24%) or expanding their family (23%) would be the top reason to purchase a home. 

On the other hand, the number one reason respondents would delay home purchase is due to concerns of not having enough money for a down payment and/or monthly payments (58%). Slightly more than half of those respondents (51%) said they believed they would need to meet a down payment requirement of 10-20%.

The survey also found that prospective new homebuyers delayed their purchases because they wanted a more steady job (39%) and due to home prices being too high (35%). Of those respondents who said home prices are too high, 60% said they would relocate to another city or state if the cost of a home was lower than at their current location. Gen Z respondents, those born 1995 or after, were the most apt to move (70%). TransUnion proprietary data support the survey finding that people are willing to move for a new home: on average, one out of five first-time homebuyer originations are borrowed by a person who relocated from out of state.

TransUnion data also show that first-time homebuyers are younger today than they were around the time of the Great Recession. The median age of such homebuyers declined from 39 in 2010 to 36 in 2018. In fact, consumers aged 25-34 have seen their share of all first-time homebuyers rise by 6%.

“There has been a lot of discussion in the marketplace that younger people today may not be as interested as prior generations in buying a home and being tied down to one location. Our survey results suggest that is not the case at all. Rather, younger people may have in fact been deterred from home purchase by challenges they faced in the financially difficult times of the last decade.” Mellman said. “Only 10% of respondents said being tied down to one location would be a reason to delay home purchase. Just like others before them, the younger generation seem to place value in home ownership.”

The survey found even if potential homebuyers are willing to make such a purchase, challenges continue to exist. Only one third of the respondents said they actually understood the home buying process, and only 1% of survey respondents said the home buying process was easy. Many of those respondents who said they understood the home buying process were under similar false impressions as those who said they didn’t understand the home process. Two-thirds (67%) of respondents believe that a high credit score is necessary to purchase a home, and 41% of respondents believe a high down payment is required to purchase a home.  Furthermore, one in three respondents (34%) said they were not familiar with any mortgage financing options, and two-thirds of respondents were not familiar with government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac.

This finding suggests that consumers may not be familiar with programs designed to increase access to mortgages, like those specifically open to consumers with lower credit scores, or those that require as little as 3% down payment.

“Many of our potential first-time homebuyer respondents don’t seem to be aware of the wide variety of financing options available to them. It suggests there’s a large opportunity for lenders to proactively identify consumers who are interested in becoming first-time homebuyers and then educating them on options they may not be aware of.  Consumers may find home ownership programs that are more flexible than they originally thought, and lenders in turn can gain new customers,” Mellman said.