Signs are surfacing that the much-maligned first-time buyer market is starting to see a rebound, according to Genworth Mortgage Insurance.
The company’s 2019 third quarter first time homebuyer report found that 591,000 single-family homes were bought by first-time buyers during July, August and September. That’s the most sales to first-timers in a quarter since at least 2011, eclipsing the third quarter of last year by 6,000. Moreover, home sales to first-time homebuyers grew 9% from the second quarter to a seasonally adjusted annual rate of 2.14 million units.
“Although the rebound was modest compared to the number of first-time homebuyers a year ago, and a quarter behind the broad rebound in the housing market, it was a strong rebound from the previous quarter allowing first-time homebuyers to make up some lost ground,” said Tian Liu, Genworth’s chief economist.
Also notable, Liu added, is that the moderate growth came on top of a historically large first-time homebuyer market. In the third quarter, they made up 39% of all single-family homebuyers and 55% of all purchase money borrowers. Compare those numbers to just 30% and 55%, respectively, during the start of the housing cycle in in 2013 (note that their share of homebuyers has grown faster as market share plateaued, due to the segment’s slowing sales growth). The number of first-timers during the third quarter was comparable to the number during the peak housing boom years of 2005 and 2006, and just modestly under the apex levels of 1999 and 2000.
Thirty-two states reported growth in the number of first-time buyers during the third quarter, compared to just 10 in the quarter prior. This included rapid gains in smaller states like North Dakota (17%), Montana (11%) and Alaska (11%), but also sizable growth in a few large states as well, Florida, for example, saw a 6% first-time homebuyer increase, while Texas posted a 3% rise.
The landscape of affordability that has driven strength in the residential space of late appears to finally be permeating into the entry levels of the market, according to Liu. While the 30-year conventional mortgage rate dropped 35 basis points over the last quarter to 3.66%, the interest rate for first-time homebuyers fell 41 basis points to 4.11% — its lowest point since the fourth quarter of 2016. Those historically low levels are part of the reason that, according to Census Bureau data, new home sales in the $250,000-$300,000 price range grew 31% year over year in the first three quarters of 2019. That’s more than the increase in all other price segments combined.
In fact, since the fourth quarter of 2018, improved housing affordability has increased sales to first-time homebuyers by 4%. Recovery in the first-time homebuyer market has lagged the overall market by a quarter, Liu explained, so while total home sales have gained by 8% in that same time frame, the first-time buyer segment is beginning to catch up.
Of course, low downpayment products remain the go-to option for first-time buyers, Liu said.
“The broad rebound in the first-time homebuyer market this quarter also has boosted government lending, which continues to play a large role in the market, accounting for 43 percent of all first-time homebuyers,” said Liu. FHA loans, long a first-time homebuyer favorite, were used by 175,000 first-time homebuyers in the third quarter, unchanged from last year.
But first-timers are also shifting toward conventional mortgages with low downpayments. That segment experienced vast growth among first-time homebuyers from 2014 and 2018, ballooning from 346,000 loans to 684,000. Low down conventional loans, which became the most-widely used mortgage product for first-time homebuyers in 2018, remained an attractive option during 2019’s third quarter, accounting for 35% (209,000 loans) of all first-time buyer purchases.