The Mortgage Corner
MarketWatch’s Andrea Riquier says first-time homebuyers aren’t doing so bad, if we look at more than the NARealtor’s existing-home sales data. First-timers’ sales data is important because they usually choose so-called “entry-level” homes that are affordable to moderate income households, which is important because moderately-priced housing for young adults is always in short supply.
Ms. Riquier reports the New York Fed might have a more accurate way to track first time homebuyers via their credit records, because the NYFed doesn’t rely on mortgage application data that is self-reported and hasn’t yet been confirmed during the formal application process.
Their result shows that the first-time segment of buyers is back to 46 percent in 2016, from its low of 43 percent. The NAR has consistently reported first-timers’ percentage of sales at no more than 40 percent since the Great Recession.
The NYFed intones the importance of tracking borrowers on their website. “The large increases in consumer debt and defaults—of mortgage debt in particular—during the Great Recession highlighted the importance of understanding the liabilities reflected on household balance sheets.
“To that end, one of the CMD’s large data collection projects is the New York Fed Consumer Credit Panel, which is constructed from a nationally representative random sample of Equifax credit report data.”
First-time homebuyers are younger and borrow less than repeat buyers, says the NYFed. And because they weren’t homeowners at the time, they didn’t suffer as much as repeat buyers in the ups and downs of the housing bubble. So the median age of first-time buyers actually declined from 35 in 2000 to 32 in 2016, while the median age of repeat buyers increased from 43 in 2000 to 46 in 2016, as housing prices recovered from the busted housing bubble.
I reported in an earlier column that a major reason for the jump in first-time buyers was their increase in household formation. The millennial generation is forming more new households, and at least 50 percent have historically wanted to buy a home. Researchers at the San Francisco Federal Reserve have been finding such an increase.
“The shares of young adults heading households now are similar to rates seen at the start of the housing boom,” said SF Fed researchers. “Moreover, while more young adults are living at home longer, data suggest they are continuing to transition to higher headship rates as they get older…Given current 12-month annual headship rates by age group, the Census Bureau projections imply household formations averaging on the order of 1.4 to 1.5 million per year through 2020. That is much better than an average of a little less than 900,000 annually over the past five years.”
First-timers’ ownership rate will no doubt continue to fluctuate, as many of them are still burdened by education debts, and a lower wage structure for those just entering the workforce. But home owning is the main wealth aggregator for middle class households and so will continue to incentivize young adults to buy rather than rent, but only if builders will construct more affordable housing, with loan programs and interest rates that make this possible.
Harlan Green © 2019
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