NAFCU Services Blog

Homebuying Market Remains Calm Amid Economic Headwinds

By Tian Liu, Chief Economist, Genworth Mortgage Insurance

Since 2014, first-time homebuyers have been a crucial part of the housing market. In fact, we discovered that this segment has grown by over 40% since 2014. Still, more than 2.7 million potential buyers are missing from this group, offering lenders a vast opportunity in the housing market. Additionally, younger buyers are entering into this market despite limited affordable home inventory and rising interest rates. First-time buyers entered the market in the first half of this year at a faster pace than any other year since 2005.

Since 2014, the market has experienced an imbalance between supply and demand, which has slowed growth in the housing market and related industries. The market is telling us that homebuyers are sensitive to the large price increases over a short period of time and rising interest rates. So, what is this doing to the market?

In 2017, 3.4 million single-family homes were sold to repeat buyers. This number has been largely flat since 2014. Conversely, first-time homebuyers have grown by 577,000, or 39%, during the same period. These buyers have accounted for 80% of the increase in sales volume over the last four years. While these numbers look strong, there are significant headwinds, including:

  • Sales of homes valued between $150,000 and $300,000 have decreased at every price point. This lack of available properties negatively affects the demand from first-time homebuyers, resulting in a slower recovery and damaging affordability for first-time buyers.
  • Lowered supply has driven up price. According to the Federal Housing Finance Agency , the price index for purchase loans has jumped 6.5%.
  • Rising prices could lead to larger loans in 2019. Compared to a year ago, first-time buyers are paying 47 basis points more on interest (4.77%) on new loans. This leads to a 7% year-over-year increase in cost.

Positive indicators for homebuyers in the same timeframe include employment growth in 25- to 44-year-olds, falling unemployment and historically low interest rates (but they are increasing).

While these economic trends present challenges for first-time homebuyers, many are still entering into the market by leveraging lower down-payment solutions. In fact, two loan types have surged in the last quarter: conventional mortgages with private mortgage insurance and VA loans, which jumped more than 30%. These options can help counterbalance the headwinds for first-time homebuyers.

For more insights derived from the "August 2018 First-Time Homebuyer Market Report," read part two of the first-time homebuyer blog series, "As Demand Drives Up Pricing, First-Time Homebuyers Work to Stay on Budget."

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