Despite a bubbling affordability crises across the nation, first-time homebuyers aren’t backing down. According to a market report by Genworth Mortgage Insurance published on Tuesday, the number of first-time homebuyers exceeded 2 million for the third consecutive year in 2019 — a feat not accomplished since 1993.
Tian Liu
“The housing market is in the middle of a multiyear boom in the first-time homebuyer market,” Genworth Chief Economist Tian Liu said in a prepared statement. “The market has exceeded 2 million first-time homebuyers each year for the past three years, which is unprecedented in the past 26 years.”
“In part, this represents a long-overdue rebound from the trough earlier in the decade,” he added.
In 2019, first-timers represented 38 percent of all homebuyers in the single-family housing market and 56 percent of all mortgage borrowers. First-time buyers purchased 2.09 million properties in 2019, the highest purchase pace since 2000 (2.26 million).
An increase in entry-level housing starts, and favorable mortgage rates and down payment options are responsible for the surge in first-time buyer activity, Liu explained.
“In addition to lower mortgage rates, housing affordability also improved as homebuilders expanded building activity by 16 percent in the $200,000 to $400,000 price range, leading to the fastest growth in new homes sold since 2016,” he said. “[Low-down payment mortgages] financed 1.66 million first-time homebuyers in 2019 — the second-biggest year for the low-down-payment mortgage market in history.”
Liu expects the share of first-time buyers to continue its upward march, as millennials reach their prime homebuying age and a large swath of homeowners begin plotting their next purchase.
“The aging of the millennial population implies that the increase in first-time homebuyers over the age of 30 will likely lead to an overall increase in the number of first-time homebuyers in the 25-44 age group in the order of 580,000 first-time homebuyers over five years,” he said.
According to the report, first-time buyer activity slumped from 2007 to 2015, as homeowners held tight to inventory in the face of rising home prices. However, that trend has begun to reverse, as evidenced by the purchase pace of repeat buyers.
“In 2019, the number of repeat buyers grew by two percent to 3.4 million, exceeding the growth rate in the first-time homebuyer market,” he added. “The strong growth in the last few years predicts that the repeat-buyer market and mobility should recover over the next five years.”
Although the first-time buyer market outlook is rosy, Liu said it won’t be devoid of challenges. The economist said millennials must prepare to compete with Gen-Zers for inventory, especially in cities with healthy jobs growth and affordable housing.
“The sheer size of the market and the delay in expanding housing supply means that a first-time homebuyer’s paradise, a place with abundant job opportunity and highly affordable housing, is difficult to find,” he said. “Markets with abundant job opportunities and acute affordability challenges also are markets with the most opportunities to expand supply and policy intervention.”
“In the meantime, first-time homebuyers may have to compromise between job opportunities and housing affordability,” he added.
