What You Need to Know About First-Time Homebuyers
Signs of a continuing strong housing market were reported This Week in Real Estate as evidenced by the fact that bank repossessions reached an all-time low in the first quarter and applications for new home purchases were up 7% compared to the same time last year and up 19% over the prior month. Below are a few highlights from the second week of April that influence our business:
Builder Applications Hint at Strong Spring New Home Sales. Applications for financing new home purchases were up significantly in March. The Mortgage Bankers Association (MBA) reports that Builder Application Survey (BAS) data for the month shows a 7 percent increase in those applications compared to March 2018 and a 19 percent gain over February. The application data is not adjusted for seasonal variations. With a strong job market, rising wages and lower mortgage rates, housing demand remains strong, as shown by the solid 7 percent growth in new home purchase applications in March,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “The confluence of declining mortgage rates with the spring buying season is supporting stronger housing demand and activity. Additionally, the drop in average loan size suggests that builders are tilting production to lower-priced homes, which continues to see the tightest inventories and strongest home-price growth.” Conventional loan applications accounted for 68.7 percent of the total. The FHA share was 18.8 percent, the VA share was 12 percent and RHS/USDA loans received 0.5 percent of the total. The average loan size of new homes decreased from $340,692 in February to $331,794 in March.
Here’s What You Need to Know About First-Time Homebuyers. Earlier this week, we established that first-time homebuyers are not, in fact, being shut out of the housing market as some had feared, thanks to a recent study by the Federal Reserve Bank of New York. Rather, their share of market participation has remained stable over time, rising and falling slightly over the last 17 years in response to market conditions, but averaging about 45% of the overall market. The NY Fed revealed that as of 2016, first-timers comprised a healthy 46% of homebuyers. First-time buyers generally take out smaller mortgages than repeat buyers. And, this gap is widening. In 2000, the average origination mortgage balance was $117,000 for first-timers was and $143,000 for repeat buyers. In 2016, the average origination mortgage balance was $213,000 for first-timers was and $273,000 for repeat buyers. First-time buyers traditionally have lower credit scores than repeat buyers. In 2000, first-time buyers had an average credit score of 670, while repeat averaged 705 – representing a 35-point difference. The subsequent housing boom and then bust drew credit scores down around 2003 and then up again in 2007. They continued to rise until 2013 and then remained stable for three years. In 2016, the spread between the two was 37 points – relatively unchanged from 2000. First-time buyers have smaller student loan balances than repeat buyers. While in 2000, average student loan balances for both first-time and repeat buyers were about the same, around $13,000, although first-timers generally had a slightly higher balance. But average student loan balances have trended upward over the last 17 years, and the disparity between the two demographics grew. As of 2016, the conditional average student loan debt for first-time buyers was $29,000, compared with $42,000 for repeat buyers. First-time buyers are getting older every year. The average first-timer was 35.4 years old in 2016 – quite a bit younger than 2017’s average of 37.9. The age of first-time buyers has increased incrementally every year for the past 17 years. Conversely, repeat buyers are also getting older, averaging 44.7 in 2000 and reaching 47.5 in 2016. First-time buyers are purchasing homes in cheaper neighborhoods than repeat buyers. Researchers looked at the average income in zip codes where buyers were purchasing homes. They determined that there is a relatively consistent difference of about $9,000 in average income in neighborhoods chosen by first-timers versus repeat buyers.
U.S. Foreclosure Activity Decreases 15 Percent in Q1 2019 to Lowest Levels Since Q1 2008. ATTOM Data Solutions released its Q1 2019 U.S. Foreclosure Market Report on Thursday, which shows a total of 161,875 U.S. properties with a foreclosure filing during the first quarter of 2019, down 23 percent from the previous quarter and down 15 percent from a year ago to the lowest level since Q1 2008. The report also shows a total of 58,550 U.S. properties with foreclosure filings in March 2019, up 7 percent from the previous month but down 21 percent from a year ago – the ninth consecutive month with a year-over-year decrease in U.S. foreclosure activity. “While some markets saw a slight uptick in foreclosure filings, that is above pre-recession levels, the majority of the major markets are well below pre-recession levels,” said Todd Teta, chief product officer at ATTOM Data Solutions. “While we did see a slight increase in U.S. foreclosure starts from last quarter, bank repossessions reached an all-time low in the first quarter of 2019, showing continuing signs of a strong housing market.”