More first time buyers in the United States are fulfilling their dream of owning their own home, reaching their highest level in the second quarter of 2017 for over a decade.
They bought 570,000 single family homes, up from 426,000 in the previous quarter, reaching the highest level for a second quarter since 1999.
The first time buyer market report from Genworth Mortgage Insurance also shows that the number of single family home sales increased by just 2% during the quarter from a year ago but sales and mortgages made to first time buyers increased by 8%.
Some 36% of all single family homes sold in the quarter were to first time buyer, up from 34% a year ago. In the mortgage market, they accounted for 57% of all purchase mortgages originated, up from 56% a year ago.
Historically, first time buyers have accounted for 35% of the single family housing market and 45% of the purchase mortgage market.
‘The rapid growth in the first-time homebuyer market that began in 2015 continued into the second quarter. As the housing market matures, first time buyers are becoming an even more important source of growth,’ said Tian Liu, chief economist for Genworth Mortgage Insurance.
‘Whether one looks at the three million missing first time buyers since 2007 or the historically low home ownership rate among young households, the potential growth opportunity remains large and will likely take years to play out. The current housing cycle will be defined by first time buyers,’ added Liu.
The report suggests that a key driver in boosting first time buyer numbers has been an increase in the kinds of homes they want being built, that is properties priced between $200,000 and $250,000.
Indeed, this was the fastest growing segment for home builders, accounting for 36% of all homes purchased during the second quarter and up 33% year on year. But while home builders have increased their focus on building homes within this price range, volume growth has still not caught up due to a low starting level, growing modestly by 13,000 units in the first half of the year.
‘As first time buyers continue outpacing the rest of the single- family homes market, home builders have begun adjusting their products further down the pricing curve. However, the growth in supply has not been sufficient enough to offset the supply demand imbalance, leaving many potential first time buyers still frozen out of the market,’ said Liu.
The supply shortage of new, affordable starter homes has also led to a sharp decline in vacant homes for sale, sending the home owner vacancy rate during the second quarter into its lowest level since 1994, which Genworth Mortgage Insurance believes will continue to drive home price appreciation.
‘While many forecasters predict that increased supply will stem home price appreciation, we believe a slowdown in home price appreciation will be unlikely in 2017 and 2018. We do not believe that the strong growth in home prices is leading to another housing bubble. A key feature of housing bubbles is speculative demand. Today, first time buyers are out bidding investors and cash buyers,’ added Liu.
The report also shows that first time buyers continued to rely on low down payment mortgages during the second quarter, financing 448,000 homes or 78% of all sales, up 8% year on year and exceeding the growth in the purchase origination market.
‘Faster growth in the low down payment mortgage market is primarily the result of an expanding first-time homebuyer market, rather than a relaxation of lending standards. As long as the expansion in the first time buyer market continues, low down payment mortgages will continue to outpace the rest of the mortgage market, Liu explained.
‘The surge in home financing shows that first time buyers are driving mortgage credit expansion, taking on mortgage debt to fulfil home ownership priorities, and shifting their debt appropriation away from other sources like student loans. Over time, this is expected to drive faster growth in the amount of outstanding mortgage debt which has grown by just 1% to 2% in 2015 and 2016,’ Liu pointed out.