NAFCU Services Blog

As Demand Drives Up Pricing, First-Time Homebuyers Work to Stay on Budget

By Tian Liu, Chief Economist, Genworth Mortgage Insurance

Homes for sale have been short of demand in recent years, as fewer people choose to move out of their homes. While this has had a detrimental effect on first-time homebuyers, they are finding ways to overcome.

Housing market benefits sellersDuring the second quarter of 2018, the inventory of previously owned homes averaged 1.87 million units, down 4% from the prior year. This decline directly accounts for half the decrease in existing home sales. Year-to-date, homes are staying on the market an average of 3.8 months; in a balanced market that figure would be around six months. This implies there should be approximately 2.7 million units on the market, a current shortfall of more than 800,000 homes. The housing market definitely benefits sellers right now, and home prices are likely to increase to their benefit.

Limited inventory is accelerating price. In 2015, the increase was 5.5% compared to 7% this year. The price increases coupled with rising interest rates significantly drive up the overall price for first-time homebuyers. For example, a homebuyer purchasing their first home this year will pay 12.6% more per month for their mortgage versus purchases from one year ago (6.5% from price increases and 5.7% from increased interest rates).

However, according to statistics from Fannie Mae and Freddie Mac, the median price for new homebuyers has only increased 8% in the same time. That means first-time buyers are continuing to search for homes within their budget, but are sacrificing amenities or convenience in an effort to control expenses.

Housing market activities slowed in the second quarter. Sales of single-family homes have fallen by 2%. Of the 1.57 million homes sold in this timeframe, 36% of these sales and 55% of new purchase loans went to first-time homebuyers. While this growth is promising, it is still disappointing given the strength of the economy.

Does this mean that more buyers are purchasing new homes in this market? Not necessarily. Sales growth has been moderate in that space. Most new homes are now priced at more than $300,000, as builders target more affluent buyers due to lower capacity and restrictive zoning policies.

To maintain long-term growth, we must look at other options to make the home purchase more affordable for first-time homebuyers.

For more insights derived from the "August 2018 First-Time Homebuyer Market Report," catch up with part one of the first-time homebuyer blog series, "Homebuying Market Remains Calm Amid Economic Headwinds."

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  • Genworth Mortgage Insurance
  • homebuyer
  • mortgage loan

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