First-Time Homebuyers Accounted for 55% of All Purchase Mortgages in Q3

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First-time homebuyers made up a larger share of total home sales in the third quarter compared with a year earlier, however, there aren’t enough affordable homes on the market to meet first-time homebuyer demand, a report from Genworth Mortgage Insurance shows.

First-time homebuyers accounted for 40% of single-family homes sold in the third quarter and 55% of purchase mortgages originated, according to the company’s First-Time Homebuyer Market Report.

About 582,000 single-family homes were purchased during the third quarter, an increase of 1% compared with the third quarter of 2017.

From Jan. 1 to Sept. 30, about 1.58 million single-family homes were purchased – the most during the first nine months of a year since 2005.

The report shows that higher home prices and rising mortgage interest rates are impacting affordability: Monthly mortgage payments for first-time homebuyers increased by 15% compared with a year earlier due to these two factors, Genworth says.

The report also shows a shift toward less expensive homes: Sales of new homes priced between $200,000 and $300,000 increased 15% compared with the third quarter of 2017 while sales of homes priced between $300,000 and $750,000 decreased by 5%.

“The first-time homebuyer market once again outperformed the broader market, recording the best first nine months in 13 years and showing that the current housing cycle’s fundamentals remain strong despite a broader slowdown in activity,” says Tian Liu, chief economist for Genworth Mortgage Insurance, in a statement. “At the same time, first-time homebuyers are not immune to declining affordability, and the market has declined in 19 states.”

Liu says first-time homebuyers are adjusting to declining affordability simply by buying cheaper homes.

“In previous quarters, that showed up as stronger home price gains at the lower end,” he says. “This quarter, instead, home prices declined at the higher end – for the first time since the 2013-2014 ‘Taper-Tantrum’ event. This bears monitoring since lower prices and weaker demand could cascade into the first-time homebuyer market at the lower end.”

Interestingly, the report shows that first-time home buyer activity was stronger in certain markets, as opposed to being more geographically widespread, as it has been historically.

Unlike the 2014-2017 period, when almost all states reported increased first-time homebuyer activity, only two-thirds of states reported growth in the third quarter.

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