During the past 10 years, three million first-time home buyers have been sidelined, according to Genworth Mortgage Insurance, an operating segment of Genworth Financial, Inc. (NYSE: GNW). Now those buyers are jumping into the market, with both feet, according to the company’s inaugural First-Time Homebuyer Market Report.
The new report traces the first-time home buyer market back to 1994, analyzing more than 20 million records of first-time home buyers from mortgage origination data. It is the first report to track home sales to first-time home buyers on a monthly basis and report at quarterly intervals, allowing for first-time home buyer data to be compared against national housing market indicators. Additionally, it is the first report to separately identify first-time home buyers enabled by low down payment mortgages, such as conventional mortgages with mortgage insurance coverage, FHA loans, VA loans, and USDA loans.
“Over the past three years, first-time home buyers have accounted for 85% of the growth in home sales and have become an important indicator for understanding market trends,” said Tian Liu, chief economist for Genworth Mortgage Insurance. “Their impact has already been felt in falling inventory and rising home prices, and we expect them to increasingly drive growth to businesses most exposed to this market segment.”
Liu continued, “Despite their growth in volume, many prospective buyers and housing market participants still mistakenly believe that a 20% down payment is required to qualify for a mortgage. By studying this group more closely, we hope to bring a better understanding about the many low down payment options available to help first-time home buyers reach home ownership sooner.”
During the first quarter of 2017, 424,000 single-family homes were sold to first-time home buyers (38% of all single-family home sales), the most during that period since 2005 and an 11% increase from the same period in 2016.
The surge in the first-time home buyer market from 2014-2016 accounted for 85 percent of the expansion in the housing market. The annual increase of approximately 260,000 first-time homebuyers for two years in a row is unprecedented during the period of 1994-2016, and had a large impact on the overall housing market in both inventory and home price appreciation.
2016 was the strongest year for the first-time home buyer market in 11 years, reporting two million first-time home buyers, or 15% more than in 2015. First-Time home buyers accounted for 37% of all single-family homes sold in 2016, up from 34% in 2015.
The report estimates that historically 1.8 million first-time home buyers purchased homes each year between 1994 and 2016, accounting for 35% of all single-family homes sold. Because of the housing crisis, only 1.5 million first-time home buyers have been able to purchase homes in the last 10 years, three million fewer than the historical average. That pent-up demand among first-time home buyers will likely lead to a surge in demand for entry-level single-family homes, low down payment mortgages, and a general uptick in home ownership.
Private mortgage insurance and FHA loans accounted for 80% of the growth in the first-time home buyer market from 2014-2016. This breaks out to 730,000 first-time home buyers who used FHA loans, and 510,000 who used private mortgage insurance.
