First-Time Homebuyer Market Report - · PDF filethe repeat buyer market declined five percent....

FIRST-TIME HOMEBUYERMARKET REPORT

DECEMBER2017

GENWORTH MORTGAGE INSURANCE

Genworth Mortgage Insurance Corporation ©2017 Genworth Financial, Inc. All rights reserved.

12162499.1117

The housing market slowed in the third quarter, as single-family home sales slipped one percent from a year ago. However, sales to first-time homebuyers and repeat buyers diverged. The first-time homebuyer market continued to grow, increasing six percent from a year ago, while the repeat buyer market declined five percent. In fact, the first-time homebuyer market had its best quarter since the third quarter of 2000, and will likely have one of the best years since the last housing boom. Home sales to first-time homebuyers should exceed its historical average, meaning that some of the three million missing first-time homebuyers are re-entering the market. As we noted in our inaugural report, the current housing cycle differs from the previous cycle in that it is driven by first-time homebuyers. The recent slowdown in the broader housing market was due to falling sales to repeat homebuyers. Lack of inventory, higher mortgage interest rates, and strong competition from first-time homebuyers may have deterred some potential repeat buyers, causing them to stay in their current homes. The housing market has also shown little improvement in the availability of affordable homes, and the pullback of repeat buyers is one symptom that the housing market is not working well for all potential homebuyers. It also shows that inadequate supply is hurting the real estate industry as well as potential homebuyers, and requires a unified response from both government and industry.

Within the mortgage market, faster growth in the first-time homebuyer market and falling cash sales have resulted in faster growth in purchase mortgage loan count relative to home sales. The rise of the first-time homebuyer market is largely driven by organic growth in demand. This is evidenced by the rising share of first-time homebuyers across both high and low down payment mortgage lending. However, the rise of the first-time homebuyer market has boosted demand for low down payment mortgage lending and increased its share in the mortgage market. This is especially true for the private mortgage insurance industry, which was again the fastest-growing mortgage product in the mortgage industry.

2Genworth Mortgage Insurance Corporation ©2017 Genworth Financial, Inc. All rights reserved.

EXECUTIVE SUMMARY

https://miblog.genworth.com/wp-content/uploads/2017/06/Genworth-FTHB-Market-Report-6.17.pdf


Genworth Mortgage Insurance has been helping first-time homebuyers become homeowners since 1981. In 2016, 55 percent of our purchase loans went to first-time homebuyers. The private mortgage insurance industry is the largest provider of private capital for first-time homebuyers, insuring 507,000 of these mortgages in 2016. We understand the first-time homebuyer segment, both the ones we serve and those served by others. We started working on the First-Time Homebuyer Market Report in 2015. The question was both simple and important: how many homes are sold to first-time homebuyers in a given month? We then raised the bar higher still: by extending the monthly series back to 1994, and reporting the latest data with a minimal lag. Our approach is different from others in that we rely on government reports and industry sources. We believe this is a breakthrough, one that will help the housing industry and policymakers gain insights into the first-time homebuyer market. This report is a testament to our commitment to the first-time homebuyer market.

-Tian Liu Chief Economist at Genworth Mortgage Insurance

Its first-time homebuyer market increased 19 percent from a year ago. Assuming that the current trend continues, it will likely become the largest source of credit enhancement for the first-time homebuyer market soon, taking over from the Federal Housing Administration (FHA). Although the market share of government lending is declining in the first-time homebuyer market, it remains historically high at 46 percent compared to 20 percent before the Housing Crisis. With the strong rebound in the first-time homebuyer market, now is the right time for the government to scale back on programs intended to serve this market.

Higher home prices have increased the average loan size for new borrowers and home equity for existing homeowners. We expect rising home prices this year to move the conforming loan limit to around $450,000 next year, and provide a greater incentive to existing homeowners to extract home equity through refinancing—although the magnitude of any equity extraction-led refinancing will likely be more muted compared to the last housing cycle.


KEY FINDINGS:

1. In the third quarter, first-time homebuyers purchased 601,000 single-family homes (fig. 1), the most since the third quarter of 2000. It accounted for 40 percent of all single-family homes sold (fig. 3), and 56 percent of all purchase mortgages originated (fig. 4).

2. After more than two years of strong growth, the first-time homebuyer market is now much larger than its historical annual average of 1.8 million units in home sales (fig. 2). In contrast, the repeat homebuyer market has been largely flat since 2013 (fig. 7).

3. The first-time homebuyer market again grew faster than both purchase originations and overall home sales. The first-time homebuyer market was up six percent year-over-year, while repeat buyers fell five percent (fig. 5). In the mortgage market, growth in the number of first-time homebuyers also exceeded growth in repeat buyers (fig. 6). The decline in the repeat buyer market resulted in lower total home sales compared to the prior year, the first year-over-year decline in home sales in three years.

4. Purchase origination grew faster than home sales during the third quarter, as cash sales declined more than the overall market, and the first-time homebuyer market grew faster than the overall market. Faster purchase origination growth over home sales has been a constant trend since 2012 (fig. 8). The purchase mortgage loan count was up one percent from a year ago during the third quarter, compared to a decline of one percent in single-family home sales for the quarter. Year-to-date, the number of purchase loans are up five percent from last year, while home sales are up two percent.

5. New homes priced under $250,000, which is the key price segment for first-time homebuyers, were flat. Homebuilders reported faster sales growth in new single-family homes priced between $200,000 and $250,000, which is up 20 percent from a year ago (table 2, fig. 16). But that growth came at the expense of homes priced below $200,000. Growth in new home sales was concentrated in the $300,000 and above price segment, which will add overall supply to the housing market and benefit first-time homebuyers indirectly. But compared to prior housing cycles, this will result in a slower increase in housing supply and more home price growth, which means that the overall housing market should remain a seller’s market. Lower sales to repeat buyers, if sustained, could reduce housing demand, alleviate inventory pressure, and ease home price growth.

6. The single-family housing market continues to experience insufficient supply of homes for sale. During the third quarter, the supply of existing homes for sale averaged 4.2 months, down from 4.6 months a year ago (fig. 15).

7. The lack of housing supply has led to accelerating home prices. Year-to-date, home price appreciation as measured by the Federal Housing Finance Agency (FHFA) home price index for purchase loans accelerated to 6.7 percent growth, up from 6.1 percent growth a year ago (fig. 17).

FTHBM1 Size

Historical Average2: 1.8 million

Peak: 2.3 million (1999)

Trough: 1.2 million (2011)

2016: 1.9 million

Q3 2017: 601,000, +6% year /year

YTD 2017: 1.6 million, +8% y/y

¹First-Time Homebuyer Market21994-2016


8. Since first-time homebuyers represent the transition of housing demand from rental to owner-occupied housing, strong first-time homebuyer demand is beginning to lift homeownership rates, especially for households headed by younger adults. In the third quarter, homeownership rates among households headed by people under 35, and between 35 and 44 years, saw the largest gains (fig. 9). But even after these recent gains, they remain well below historically normal levels. This suggests that the first-time homebuyer market will likely remain strong in the coming years.

9. Within the mortgage market, first-time homebuyers have historically relied on lower down payment mortgages, defined as those with a combined loan-to-value ratio (LTV) of 80 percent or higher. When buying a home, 78 percent of first-time homebuyers used a low down payment mortgage, while 22 percent used a high down payment mortgage in the third quarter (fig. 11).

10. The number of first-time homebuyers increased across the down payment spectrum in the third quarter. Low down payment mortgages financed 467,000 home sales to first-time homebuyers, up five percent from a year ago (table. 1, fig. 10) and the second highest quarter after the third quarter of 1999. High down payment mortgage products financed 135,000 home sales to first-time homebuyers, up 10 percent from a year ago.

11. Among low down payment mortgage products, private mortgage insurance again reported the fastest growth in first-time homebuyers, as more lenders and borrowers embraced 97 LTV products. The private mortgage insurance industry insured loans to 181,000 first-time homebuyers during the third quarter (fig. 12). This represented an increase of 19 percent from a year ago (table. 1) and just below the previous peak in the second quarter of 2007. The private mortgage insurance industry is also the segment of the mortgage market that has seen the biggest increase in the mix of first-time homebuyers in the current housing cycle (fig. 13). In contrast, six percent fewer first-time homebuyers used mortgages backed by the FHA. While the FHA remains the single-largest source of financing for first-time homebuyers at 197,000 loans for the quarter (fig. 12), private mortgage insurance will take over that role in the near future, assuming that the current trend continues. To underscore the strength of the first-time homebuyer segment in the low down payment mortgage market, both VA and USDA reported a double-digit increase in first-time homebuyers for the third quarter.

12. Government lending programs remained very large in the first-time homebuyer market. During the third quarter, government lending programs represented 46 percent of the first-time homebuyer market (fig. 14). The footprint of government lending programs in the purchase market and in the first-time homebuyer market segment have expanded sharply over the last 10 years from 20 percent of the first-time homebuyer market.

FTHB3 Mix: Housing Market

Historical Average: 35%

Peak: 46% (1996)

Trough: 26% (2004)

2016: 36%

Q3 2017: 40%

YTD 2017: 37%

3 First-Time Homebuyer


DEFINING AND ESTIMATING THE FIRST-TIME HOMEBUYER MARKET

In these reports, we adopt the definition of first-time homebuyers provided by the Department of Housing and Urban Development (HUD), which is widely used within the housing and mortgage industry. Under this definition, a first-time homebuyer is an individual who has not been a homeowner in the previous three years4. Adopting this definition allows us to use data available from the mortgage industry and from government agencies, which is the basis of our methodology5. Our data includes publicly available reports from the FHA, the mortgage insurance industry, VA, and USDA, as well as proprietary data from Genworth Mortgage Insurance, which makes our coverage of the first-time homebuyer market more comprehensive than is possible with agency securitization data alone. Where data is not available, we use assumptions to extend coverage. Together, government and industry sources provided 21.2 million first-time homebuyer records between 1994 and 2017, accounting for 50 percent of the estimated total number of first-time homebuyers. Of the 1.5 million estimated first-time homebuyers during the first three quarters of 2017, over 1.1 million came from actual data or reports. In addition to reporting the mix of first-time homebuyers in the mortgage market, we also report the number of homes sold to first-time homebuyers. This allows us to tie the first-time homebuyer market with home sales and purchase loan originations, which is very important to understanding the impact of first-time homebuyers on the entire housing market. Our series goes back to 1994, which allows users to place today’s market size in the context of the last two housing cycles. In addition, we separately identify first-time homebuyers enabled by private mortgage insurance from the overall conventional market. By doing so, we provide an estimate of the low down payment mortgage market, which is an important source of credit to first-time homebuyers.

Q3 2017 TRENDS

FIRST-TIME HOMEBUYERS STILL THE FASTEST GROWING SEGMENT AMID HOUSING SLOWDOWN

Home selling activities slowed in the third quarter. Sales of single-family homes during the quarter were one percent below the level a year ago. Growth rates have fallen progressively as the year went on, resulting in the first year-over-year decline in home sales since 2014. While the slowdown affected both first-time homebuyers and repeat buyers, the number of first-time homebuyers continued to grow. During the quarter, first-time homebuyers purchased 601,000 single-family homes, an increase of six percent from a year ago. It was the best quarter for the first-time homebuyer market since the third quarter of 2000. In the first three quarters, the total number of single-family homes sold to first-time homebuyers was 1.57 million units, 120,000 units more than the same period last year. However, growth has decelerated compared to 2015 and 2016, when the first-time homebuyer market grew

FTHB Mix: Mortgage Market

Higher than the Housing Market because no cash buyers are in the Mortgage Market

Historical Average:45%

Peak: 60% (2009)

Trough: 33% (2003)

2016: 54%

Q3 2017: 56%

YTD 2017: 56%

4 The full definition is archived here: https://archives.hud.gov/offices/hsg/sfh/ref/sfhp3-02.cfm. See our inaugural June report under the section “Who is a First-Time Homebuyer?” for a discussion of the difference between the HUD definition and the literal definition.5 See “Estimating the First-Time Homebuyer Market” and “Appendix” sections in our June report for a detailed discussion on our methodology, data sources, and assumptions.

https://archives.hud.gov/offices/hsg/sfh/ref/sfhp3-02.cfm





Fig. 1 First-Time Homebuyer Market—QuarterlyFig 1 below

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Fig. 2 First-Time Homebuyer Market—Annual

Fig 2 below

YTD: 1.6MM

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Existing Home SalesSource: Census Bureau, National Association of Realtors

by 18 percent and 12 percent, respectively. The slowdown is to be expected since the first-time homebuyer market has expanded by almost half a million over two years, and is expected to stay above its historical average of 1.8 million a year for the second year in a row. By staying above this level, the first-time homebuyer market will be releasing pent-up demand that has accumulated over the past 10 years and should help restore homeownership rates among younger households.

Q3 was the best quarter for the first-time homebuyer market since the third quarter of 2000.

The FTHB market has expanded by almost half a million over 2 years, and is expected to stay above its historical average of 1.8 million.



MORE FIRST-TIME HOMEBUYERS IN THE HOUSING MARKET

The first-time homebuyer market has reported faster growth compared to overall single-family home sales since the third quarter of 2012. That trend continued during the third quarter—home sales to first-time homebuyers increased by 34,000 units while overall single-family home sales were down 17,000 units. Year-to-date, sales of single-family homes to first-time homebuyers were up 120,000 units from a year ago, while total home sales grew by only 86,000 units due to fewer home sales to repeat buyers. In the mortgage market, the number of mortgages to repeat homebuyers was down 51,000 units from a year ago. As a result, first-time homebuyers represent a larger share of the single-family housing market compared to a few years ago. During the third quarter, 40 percent of single-family homes sold, and 56 percent of the purchase mortgages originated went to first-time homebuyers. The share of first-time homebuyers in the housing market has seen a notable uptick over the past three years. Three years ago, first-time homebuyers accounted for only 33 percent of home sales and 51 percent of purchase mortgage originations. Historically, first-time homebuyers have accounted for 35 percent of home sales and 45 percent of purchase mortgage originations. The first-time homebuyer market has now surpassed its historical market share.

The FTHB mix in the housing market has increased steadily over the past 3 years, reaching 40% in Q3.

Fig. 3

Fig 3 below

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First-Time Homebuyer Mix—Housing Market



During the third quarter, 56% of home purchase borrowers were FTHBs.

Fig. 4 First-Time Homebuyer Mix—Mortgage Market

Fig. 4 below

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Source: Genworth Mortgage InsuranceSource: Genworth Mortgage Insurance

RETREAT OF REPEAT BUYERS A DRAG FOR HOME SALES

The decline in home sales was the result of fewer repeat buyers in the market. Repeat homebuyers purchased 888,000 single-family homes during the third quarter, down 5 percent from a year ago. Repeat buyers with mortgage financing declined four percent in the third quarter, while cash buyers were down seven percent. Although repeat buyers have not been the engine of growth in the current recovery, they have generally seen few pullbacks. This is especially true if we exclude cash buyers and focus on repeat buyers with mortgage financing. These repeat buyers became a drag on the overall housing market for the first time since the second quarter of 2011.

Fig. 5 Home Sales Growth—by Homebuyer TypeFig. 5 below

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Home Sales Growth - by Homebuyer Type

First-Time Homebuyer Repeat Buyer Home SalesSources: Genworth Mortgage Insurance


The FTHB market has grown faster than the rest of the housing market as of 2013.


Repeat homebuyers have not been an engine of growth in this housing cycle.

Fig. 6 Purchase Loan Growth—by Homebuyer Type

Fig. 6 below

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Sources: Genworth Mortgage InsuranceSource: Genworth Mortgage Insurance

Fig. 7

Fig. 7 Below

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YTD: 2.6MM

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The FTHB market has grown faster than the rest of the purchase origination market as of 2015.


The lower mix of cash sales and rising FTHBs have helped purchase origination growth to exceed home sales.

MORTGAGE FINANCING REPLACING CASH SALES

The growing presence of first-time homebuyers has been re-shaping the mortgage market. Since first-time homebuyers typically rely on mortgages to finance their purchases, rising first-time homebuyer demand has reduced the percentage of home sales paid for by cash. During the third quarter, all-cash sales were down seven percent year over year. The flipside of fewer all-cash sales is that the number of purchase mortgage loans has been growing faster than home sales. The purchase mortgage loan count was up one percent from a year ago during the third quarter, while the number of single-family homes sold fell by one percent. However, repeat homebuyers in the mortgage market declined for the first time since 2011. Lower home sales and weakness in the repeat homebuyer market means that first-time homebuyers have become a more important source of growth in the mortgage market. Mortgage lenders will need to pay more attention to this market segment.


Fig. 8 below

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Home Sales Growth vs. Purchase Loan Growth

Home Sales Purchase LoansSources: Genworth Mortgage Insurance

Fig. 8 Purchase Loan Growth vs. Home Sales Growth

Repeat buyers come to the housing market when consumers’ housing demand changes and their current homes no longer meet their needs or aspirations. Job changes, changes in income and interest rates, build-up of housing equity due to normal repayment and higher home prices can all change housing demand. The current environment of rising income, more job openings, and substantial accumulation of home equity from rising home prices should result in greater housing demand from repeat homebuyers, not less. The decline in sales suggests that lower inventory in the housing market may have discouraged potential repeat buyers in the past few quarters. In addition, the continued inflow of first-time homebuyers means that there is strong competition for homes listed for sale. Repeat homebuyers with an existing home can afford to delay home buying more than first-time homebuyers. Therefore, the supply pressure on home prices is felt more by first-time homebuyers, while the supply pressure on the availability of homes is felt more by repeat homebuyers. Finally, higher mortgage rates this year have increased the cost of financing, and may have contributed to lower sales to repeat homebuyers. Lower sales to repeat buyers in an otherwise positive macro environment is an indication that the housing market is not working well for all potential homebuyers, and also serves to remind the housing industry that low inventory can damage the industry as well as homebuyers.


Fig. 9

Source: Census Bureau Vacancy Survey

Fig 9 below

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Under 35 35 - 44Sources: Genworth Mortgage Insurance, Census Bureau Housing Vacancy Survey

Homeownership Rates—by Age, QuarterlyA strong FTHB market is beginning to lift homeownership rates among younger households.

RISING HOMEOWNERSHIP RATE AMONG YOUNGER HOUSEHOLDS

First-time homebuyers represent the transition of housing demand from rental to owner-occupied housing. Stronger first-time homebuyer demand is consistent with rising homeownership rates, especially among households headed by younger adults. This pattern is beginning to appear in homeownership rate data. In the third quarter, the homeownership rate for all households was 63.9 percent, 0.4 percentage point higher than a year ago. The increase was largest for households headed by people under 35 (up 0.4 percentage point to 35.6 percent), and between 35 and 44 (up 0.9 percentage point to 59.3 percent). Homeownership rates for these two groups remain well below their previous peaks of 43.6 percent (under 35) and 70.1 percent (35-44), respectively. Even as the first-time homebuyer market has reached historical levels, we must remember that among younger households, the homeownership rate remains quite low, so further growth in that market is likely to continue, even if it fully recovers to peak levels.

FIRST-TIME HOMEBUYER DOWN PAYMENT CHOICE

First-time homebuyers have always relied on mortgage products with lower down payments, defined as those with a combined LTV of 80 percent or higher. This reliance demonstrates that down payment affordability is a greater hurdle for first-time homebuyers than it is for repeat homebuyers, and that low down payment mortgage products are necessary for accelerating the path to homeownership for many. When policymakers, lenders, and housing advocates discuss ways of lifting homeownership, down payment affordability should be an important consideration. In the third quarter, 78 percent of first-time homebuyers used low down payment mortgages, while only 22 percent used high down payment mortgages. The market share of low down payment mortgages among first-time homebuyers is largely unchanged in the past year, but has increased by three percentage points over the past three years.


Low down payment mortgages attract a higher percentage of first-time homebuyers than high down payment mortgages. During the third quarter, 67 percent of low down payment mortgages went to first-time buyers, versus only 36 percent of high down payment purchase loans. Therefore, the availability of low down payment mortgages is an important factor in expanding the first-time homebuyer market.

Fig. 10 First-Time Homebuyer Mortgage Choice—by Down Payment

Fig. 10

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Low Down Payment High Down PaymentSource: Genworth Mortgage Insurance

Sources: Genworth Mortgage Insurance


Fig. 11 First-Time Homebuyer Mix—by Down Payment Fig. 11

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Mortgage Market Low Down Payment High Down Payment


During the past three years, the mix of first-time homebuyers in the mortgage market has increased from 51 percent to 56 percent, an increase of five percentage points. During the same period, the share of first-time homebuyers is around four percentage points higher among homebuyers with low down payment mortgages, and two percentage points higher among homebuyers with high down payment mortgages. So there has been an

Q3: 78% of FTHBs used low down payment mortgages; 22% used high down payment mortgages. Historically, the split has been 73/27.

Low down payment mortgages had a FTHB mix of 67% in Q3, while high down payment mortgages had a FTHB mix of 36%.


FHA STILL THE LARGEST SOURCE OF CAPITAL FOR FIRST-TIME HOMEBUYERS; MI CATCHING UP

Within the low down payment mortgage market, private mortgage insurance saw significantly higher growth during the third quarter, as lenders and borrowers increasingly turned toward 97 LTV products. The private mortgage insurance industry helped 181,000 first-time homebuyers during the third quarter, which is an increase of 19 percent from a year ago. The growth experienced by the mortgage insurance industry is due in part to higher first-time homebuyer mix in its purchase loans. Compared to other segments of the mortgage industry, the mortgage insurance industry has seen the biggest gain in its mix of first-time homebuyers. We expect this trend to continue as 97 LTV loans continue on a growth trajectory. The expansion in the private mortgage insurance industry means that it is catching up to the FHA, the largest provider of loan guaranty for first-time homebuyers. The FHA financed 197,000 first-time homebuyers, down six percent from a year ago during the third quarter. If this trend continues, the private mortgage insurance industry should replace the FHA as the largest source of credit enhancement for the first-time homebuyer market. VA and USDA reported growth in their first-time homebuyer market of 11 and 10 percent, respectively.

across-the-board increase in first-time homebuyer mix. However, the increase in the overall first-time homebuyer mix cannot be explained by these increases alone. The low down payment mortgage market, which has a higher-than-average first-time homebuyer mix, has expanded more rapidly than the overall purchase market. Over the last three years, the mix of low down payment mortgages has increased from 61 percent to 65 percent of the total purchase mortgage market. Therefore, the increase in first-time homebuyer mix has come from more first-time homebuyers seen in all products, as well as a bigger market share for low down payment mortgages.

FHA MI VA USDA LDP6 FTHBM

Q3

Growth (#) -13,000 29,000 5,000 3,000 22,000 34,000

Growth Rate (%) -6% 19% 11% 10% 5% 6%

Year-to-Date

Growth (#) -1,000 71,000 9,000 7,000 85,000 109,000

Growth Rate (%) 0% 19% 8% 8% 7% 8%

First-Time Homebuyer Market Growth, Third QuarterTable1

FHA remains the top mortgage product for FTHBs in Q3, but private MI is the fastest-growing and will likely become the top product soon.


6 Low down payment mortgage


Fig. 12 First-Time Homebuyer Market—by Mortgage Product

Fig. 12

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FHA MI VA USDA 2nd Lien GSE Low-LTV Other Conv.Source: Genworth Mortgage InsuranceSource: Genworth Mortgage Insurance

Fig. 13 First-Time Homebuyer Mix—by Mortgage Product

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The number of FTHBs has increased across all mortgage products in the current housing cycle.

Private MI has seen its FTHB mix rising strongly since 2011.


GOVERNMENT LENDING RETAINS A LARGE FOOTPRINT IN THE FIRST-TIME HOMEBUYER MARKET

The pullback in FHA loans this quarter resulted in fewer government loans to first-time homebuyers. During the third quarter, government lending programs helped 275,000 first-time homebuyers, down two percent from a year ago. Despite this decline, government lending programs’ footprint in the purchase market and in the first-time homebuyer market segment today are over three times the size they were 10 years ago. The share of government loans in the first-time homebuyer market has increased from 20 percent in 2007 to 46 percent in the last quarter. These programs played an important counter-cyclical role in supporting the first-time homebuyer market during the Housing Crisis. But with the first-time homebuyer market no longer in need of this high level of support, the policy rationale for maintaining such a large presence has diminished.

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Fig. 14


Fig. 14 Government Share in First-Time Homebuyer Market


MORTGAGE PRODUCT CHOICE

Housing finance as a key input is critically important to the housing market. The approach we have adopted to estimate the first-time homebuyer market helps us build a bridge between the housing market and the mortgage market. The chart on the next page (fig.15) shows the composition of the single-family housing market from a financing and homebuyer status perspective, illustrating the relationship between the housing and mortgage markets. Each block in the chart shows a group of first-time or repeat homebuyers using a particular method of financing. The size of each block is proportional to the number of homebuyers in that category.

The single-family housing market reported home sales of 4.2 million units in the first three quarters of 2017. Based on our estimate, 2.8 million units were purchased with mortgage financing, which implies that 1.4 million units were purchased with cash or bought by

The share of government loans in the FTHB market has increased from 20% in 2007 to 46% in the last quarter.


2.8 million units of single-family homes were purchased with financing in the first 9 months of 2017; 1.6 million went to FTHBs.

SINGLE-FAMILY HOME SALES: 4.2MM (9M 2017)

0.4MM

SINGLE-FAMILY HOME SALES: 4.2MM (9M 2017)

SIN

GLE

-FA

MIL

Y H

OM

E SA

LES:

4.2

MM

(9M

201

7)

Cash/International Buyers: 1.4MM

VA REPEAT: 0.2MM

VA FTHB: 0.1MM

USDA FTHB: 0.1MM

Purc

hase

Mor

tgag

e: 2

.8M

M

LOW

-LTV

GSE

REP

EAT:

LOW-LTV GSEFTHB: 0.2MM

Other Conv. Repeat: 0.2MM Other Conv. FTHB: 0.1MM

FHA FTHB: 0.5MM

FHA REPEAT: 0.1MM

MI REPEAT: 0.3MM MI FTHB: 0.5MM

Single-Family Housing Market—by Homebuyer Type and Mortgage Product

international homebuyers. Among the 2.8 million units purchased by homebuyers who used financing in the first nine months of 2017, 1.6 million were first-time homebuyers and 1.2 million were repeat homebuyers. The 2.8 million combined homebuyer market can also be divided into different mortgage products: private mortgage insurance (0.8 million), FHA loans (0.7 million), below-80 percent LTV GSE loans (0.6 million), other conventional markets (0.3 million), VA loans (0.3 million), and USDA loans (0.1 million).

Fig. 15


SLOW GROWTH IN HOUSING SUPPLY AND LACK OF SUPPLY IN AFFORDABLE HOMES

The slow recovery in new single-family housing and the sharp cutback in affordable housing have been two problems facing the current housing recovery. While there is increased awareness of growing first-time homebuyer demand in the homebuilding industry, sales growth in that segment has been moderate. In the under-$250,000 price segment, sales have been flat this year. Sales of new homes priced between $150,000 and $200,000 have fallen by 16 percent and will likely experience further declines. The bright spot has been single-family homes priced between $200,000 and $250,000, where homebuilders have increased production. Year-to-date, this segment has grown by 20 percent, making it the fastest-growing segment. Growth in new construction is still concentrated in the $300,000 and above price segment, which is above what most first-time homebuyers can afford. This can still benefit first-time homebuyers indirectly by meeting the housing demand from potential repeat homebuyers, and making more affordable existing homes available to potential first-time homebuyers. But compared to past housing cycles, this has resulted in a slower recovery in housing supply, and a faster growth in home prices.

9M2017 2017Q3

Growth Rate (‘000 units) Growth Rate (‘000 units)

$150-200K -16% -10 -12% -2

$200-250K 20% 13 6% 1

$250-300K 0% 0 -4% -1

$300-400K 8% 9 6% 2

$400-500K 10% 6 2% 0

Growth in New Home Sales by Sales Price Table2

Insufficient supply of new homes has led to further tightening in the housing market. In the market for previously-owned homes, inventory available for sale was down seven percent year over year during the third quarter, and the supply of homes for sale has come down to 4.2 months of sales during the third quarter, compared to 4.6 months a year ago. A seller’s market is defined as one with less than six months’ worth of inventory at the current sales pace, which puts upward pressure on home price appreciation. Home price growth has accelerated since 2014. In the first eight months of the year, home prices were 6.7 percent above the level from a year ago, up from the 6.1 percent growth rate in 2016. Even though homebuilders are beginning to increase production at the “low” end of the market, the response so far seems insufficient to ease the pressure on inventory, or for home prices to moderate beginning later this year. In our view, strong first-time homebuyer demand and insufficient increase in supply will keep home prices growing at the current pace in 2017 and 2018. The lack of supply is the biggest limiting factor facing first-time homebuyers in the housing market, and it is unlikely to be resolved in the near term. This puts us at odds with the consensus view among economists calling for slower home price growth starting

Source: Census Bureau

New home sales priced under $250,000 have been flat this year.


this year. The argument goes that home price growth is outstripping income growth and the eroding affordability is not sustainable. While deteriorating affordability will price some first-time homebuyers out of the market, our view is that the large influx of first-time homebuyers should maintain home price growth for at least another year. Fig. 16

3.0

3.5

4.0

4.5

5.0

5.5

6.0

S O N D15F M A M J J A S O N D16F M A M J J A S O N D17F M A M J J A S

Mon

ths

of S

uppl

y

Month

Supply of Existing Homes For Sale

Source: National Association of Realtors

Fig. 16 Housing Inventory—Existing Homes

Source: National Association of Realtors

2014 Avg: 5.2 2017 YTD Avg: 4.02015 Avg: 4.8 2016 Avg: 4.4

Fig. 17

020406080

100120140160

2011 2012 2013 2014 2015 2016 2017

Sale

s ('0

00 u

nits

)

Quarters

New Home Sales by Price

$150-200K $200-250K $250-300K $300-400K $400-500KSources: Census Bureau

Fig. 17 New Homes Sold—by Sale Price

Source: Census Bureau

The current recovery has seen no growth in new homes priced under $250,000.

The supply of existing homes for sale has come down to 4.2 months of sales during Q3, vs. 4.6 months a year ago.


Source: FHFA Purchase-Only Index

0

1

2

3

4

5

6

7

8

A S O N D15F M A M J J A S O N D16F M A M J J A S O N D17F M A M J J A

Y/Y,

%

Month

Home Price Appreciation

Source: FHFA Purchase-Only Index

Fig. 18 Home Price Appreciation

2014 Avg: 5.4% 2017 YTD Avg: 6.7%2015 Avg: 5.7% 2016 Avg: 6.2%

IMPLICATIONS OF RISING HOME PRICES

Rising home prices will likely have many secondary effects. Within the housing market, this will create the incentive for more new housing developments further away from existing amenities, where land prices are more affordable. Rising home prices will result in a higher average loan balance and result in higher origination volume without increase in home sales or in loan count. We also expect the 6.7 percent increase in home prices so far this year to push the conforming loan limit to the $450,000 range in 2018. For homebuyers, rising home prices will likely result in both higher debt loads and bigger monthly mortgage payments.

For existing homeowners, rising home prices have already sharply increased the amount of homeowner’s equity. Historically, homeowner’s equity has been used to increase household’s housing-related consumption, driving more move-up home-buying and more remodeling and repair projects. The lack of supply in the housing market will likely push more spending towards remodeling and repair projects. Homeowner’s equity can also be used to finance non-housing related consumer spending. Whether housing-related or not, higher home prices will likely result in increased consumer spending, which will likely drive increased refinance activities through cash-out refinancing loans and home equity loans. Equity extraction will become an important motivation for refinancing.

The large influx of FTHBs should maintain home price growth for at least another year.


Genworth Mortgage Insurance, an operating segment of Genworth

Financial, Inc. (NYSE: GNW), is headquartered in Raleigh, North Carolina,

and operates in all 50 states and the District of Columbia. Genworth

Mortgage Insurance works with lenders and other partners to help people

responsibly achieve and maintain the dream of homeownership by ensuring

the broad availability of affordable low down payment mortgage loans.

Genworth has been providing mortgage insurance products and services in

the U.S. since 1981.

Let’s help someone buy a house today.

new.mi.genworth.commiblog.genworth.com

ABOUT TIAN LIU

Tian Liu has served as Chief Economist for Genworth Mortgage Insurance Corporation since 2014. He is responsible for tracking and analysis of U.S. and regional economic conditions. He authors the company’s Weekly Economic Report and provides regular updates on housing and mortgage markets. Mr. Liu began covering the U.S. housing market in 2007. His commentary on the housing market has appeared in the Wall Street Journal, New York Times, CNBC, Washington Post, and other notable publications. Mr. Liu has a Masters in Economics from the University of Chicago and an undergraduate degree in Economics from the Australian National University. He resides in Raleigh, North Carolina, with his wife and two children.

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First-Time Homebuyer Market Report - · PDF filethe repeat buyer market declined five percent....

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