Housing Finance at a Glance: Monthly Chartbooks
The May 2017 edition of At A Glance, the Housing Finance Policy Center’s reference guide for mortgage and housing market data, includes updated figures describing originator profitability, first-time homebuyer share, mortgage delinquency rates, and the composition of the mortgage insurance market.
The Rising First-time Homebuyer Share
The first-time homebuyer share has been creeping up slowly since 2012 (page 17). In February 2017, the first-time homebuyer share of GSE purchase loans stood at 47.1 percent, up from 38 percent in 2012.
The FHA’s first-time homebuyer share has always hovered around 80 percent but is also up from 78 percent in 2012 to 82 percent in February 2017. The combined FHA and GSE first-time homebuyer share is up from 57 to 60 percent over the same period although it is still below the 63 percent peak in 2009 when the temporary first-time homebuyer tax credit was available.
Increases in the first-time homebuyer share are to be expected in the face of an improving economy, falling unemployment, and rising household formation and incomes. According to the Census Bureau, a total of 854,000 new-owner households were formed in Q1 2017, more than double the 365,000 renter households created in the same period. Although this was the first time in over a decade that the number of new-owner households surpassed new-renter households, household formation data have been quite volatile in recent years, suggesting that the latest numbers should be taken with caution.
The increase in the first-time homebuyer share has occurred alongside an increase in new home construction and a decrease in the size of the average home. Per the Census Bureau, cumulative single-family housing starts totaled 260,000 in the first four months of 2017, in comparison to 243,000 and 209,000 during the first four months of 2016 and 2015 respectively. But more importantly, the median square footage of newly built homes continued its downward trend and declined to 2,628 in Q1 of 2017 from 2,658 in Q1 2016 and 2,736 in Q1 2015. These data suggest that homebuilders are not only building more homes, but are also more inclined to build smaller, less expensive homes – which are more likely than larger homes to meet the limited budgets of first-time homebuyers.
Interestingly, increased first-time homebuying share has persisted even as house prices have risen and affordability has worsened – constraints which can create financial burdens for first-time homebuyers. First-time homebuyers typically are also less creditworthy than repeat buyers (page 17 bottom table) and therefore much more likely to be adversely affected by the overly tight credit environment we are witnessing currently (see page 13 for Housing Credit Availability Index and page 14 for trends in credit scores). However, with the end of the refinance boom, lenders can be expected to marginally open the credit box to maintain volumes and profitability.
First-time homebuyers depend overwhelmingly on low down payment financing through the FHA. However, for a variety of reasons, credit availability through the FHA channel has worsened in recent years, thus keeping many prospective homebuyers from being able to obtain a mortgage. Recent trends in household formation and construction activity are no doubt very positive developments, especially if sustained into the future. But if we are to bring more first-time homebuyers into the market, credit availability will need to do its part as well.