Genworth Mortgage Insurance has released its First-Time Homebuyer Market Report for the fourth quarter and full year 2017. The report aggregates all publicly-available government data into one dataset. The below highlights are followed by analysis from Chief Economist, Tian Liu.
- 505,000 single-family homes were purchased—the best fourth quarter for first-time homebuyers since 2006—compared to 485,000 during Q4’16
- First-time homebuyers accounted for 39 percent of single-family homes sold and 55 percent of purchase mortgages financed
- 398,000 home sales to first-time homebuyers were financed by low down payment mortgages, the strongest fourth quarter for these mortgage products since 2000
- 157,000 loans to first-time homebuyers were insured by private mortgage insurance, a 22 percent increase from a year ago, and the best fourth quarter for private mortgage insurance products on record
- First-time homebuyers purchased 2,070,000 new or existing homes, a seven percent increase from 2016 and the strongest year for the first-time homebuyer market since 2006
- However, purchase growth has declined since 2014, with 18 percent growth in 2015, and 12 percent growth in 2016, compared to only six percent growth in 2017
- The construction of new homes priced under $250,000, a key price segment for first-time homebuyers, declined by two percent, showing that supply of new affordable homes still lags demand. This supply constraint is elevating home prices and keeping many first-time homebuyers on the sidelines
- Further to that point, sales of homes priced above $500,000 grew by 25 percent in 2017 (+21,000 units), compared to a two-percent reduction in home sales below $250,000 (-1,000 units)
- All-cash home sales decreased by seven percent year over year
- Purchase mortgage loans increased by five percent compared to a two-percent growth rate of single-family home sales, driven by first-time homebuyer demand and fewer cash sales
2018 Macro-Economic Predictions
- Improving economic conditions such as rising income and more job openings should drive even stronger housing demand from first-time homebuyers
- Strong first-time homebuyer demand coupled with lagging increases in supply is expected to result in home prices continuing to rise at their current pace; this view is contrary to many industry forecasts
- For homebuyers, rising home prices will likely result in both higher debt loads and larger monthly mortgage payments
- For homeowners, the lack of “move-up homes” on the market will likely push more spending towards remodeling and repair projects, leading many to remain in their homes for longer durations
- Tax reform is expected to have a net-positive effect for the average family (median income, median-price home, two kids), because while the new tax law will remove some of the benefits previously dedicated to homeownership (lower mortgage interest deduction limit, cap for sales and state/local income and property taxes), the corresponding income benefits (lower individual tax rates, higher limits on standard deductions, and increased child-tax credit) will outweigh the deductions for most markets. The exception will be markets with high home prices, high income, and high state and local taxes.
Comments from Tian Liu, Chief Economist, Genworth Mortgage Insurance:
“The first-time homebuyer segment had one of its strongest years on record, and we expect it to continue growing in market share and driving the purchase market in 2018. Since 2014, the segment has accounted for 82 percent of home purchases, but is still facing many headwinds. Most homes built today are significantly outside of the typical first-time homebuyer’s price range ($250,000 and below). This supply shortage at the lower end of the price curve is driving home prices higher, which is sidelining many first-time homebuyers. We expect the growth of new single-family homes to continue lagging demand.
Additionally, first-time homebuyers continued driving the growing trend towards using lower down payment mortgages, recording the most quarterly loans of this type in 18 years. This coincided with loans backed by private mortgage insurance having one of their best quarters on record, at 157,000 loans insured. When considering that there are still 2,700,000 first-time homebuyers sitting on the sidelines, we believe volume for low down payment mortgages and privately insured loans will remain on its upward trajectory.
Declining repeat homebuyer volume continued to hinder overall growth numbers and, for the first time since 2011, we saw a quarter in which year-over-year demand declined. This is partially due to the inflationary pressure on home prices, which is causing repeat buyers to consider re-investing in their own homes rather than paying a premium to buy. This, in turn, is delaying entry into the market for many first-time homebuyers.
Regarding tax reform, we view the new laws as a net-positive for first-time homebuyers, but caution that this also varies by region. States with higher taxes will likely feel a lesser benefit than states where the cost of living is lower. Notably, this reform also comes at a time when the economy is already at full employment, which could add to inflationary pressure and drive up long-term interest rates. During the last major uptick in interest rates between April and September 2013 (with about twice the increase), the growth of the first-time homebuyer market slowed from 12 percent to 2 percent.”