First-Time Home-Buyer Market Growth


First time homebuyer demand surged to its highest level in 17 years during the third quarter of 2017, according to the First-Time Homebuyer Market Report from Genworth Mortgage Insurance, an operating segment of Genworth Financial.

The report, which is drawn from a data set of 21 million first-time homebuyers over a 24-year span, showed first-time homebuyers purchased 601,000 single-family homes in the third quarter. This is up 6% from 567,000 homes during the third quarter of 2016, and the highest quarterly purchase volume since the third quarter of 2000.

“First-time homebuyers bought the most homes in a quarter since the third quarter of 2000, buoying the broader housing market that had slowed during this period, -1% growth compared to Q3 of 2016,” said Tian Liu, Genworth Mortgage Insurance chief economist. “The surge in first-time homebuyer demand, and the decline in overall purchases, was driven by supply-demand imbalances in today’s housing market.”

First-time homebuyers accounted for 40% of all single-family homes sold in the third quarter and 56% of all purchase mortgages financed, the report showed.

And for the first time since 2011, repeat homebuyer demand declined. Repeat homebuyers bought 5% fewer homes during the third quarter at 888,000 homes than in the third quarter of 2016, according to Genworth’s report.

“Supply shortages are making homes less affordable, reducing incentives to existing homeowners who want to upgrade,” Liu said. “This was a leading cause of the 5% quarterly decline in repeat buyers, which contributed to the one percent decline in overall home sales. It shows that the housing market is not working for all homebuyers.”

Liu explained that while supply shortages continue to inflate home prices, first-time homebuyer demand has not diminished, and in fact has increased, because of the sense of urgency from rental and home price inflation.

“Increased supply of low down payment mortgage products has facilitated first-time homebuyers’ entry into the purchase market,” he said. “During the quarter, 78% of first-time homebuyers used a low-down payment product, an increase of 5% from a year ago.”

These homebuyers are increasingly utilizing low down payment options. The low down payment mortgages financed 467,000 sales to first-time buyers, the most loans in any quarter since the third quarter of 1999.

The private mortgage insurance industry insured a total of 181,000 loans for first-time homebuyers in the third quarter, the highest level since the second quarter of 2007 and up 19% from the third quarter last year.

In fact, this represented the fastest-growing source of credit to first-time homebuyers in the mortgage industry. And FHA loans saw a decrease, dropping 6% from last year to 197,000 FHA loans.

“First-time homebuyer growth is shifting the mortgage industry landscape in favor of the private sector,” Liu said. “The private mortgage insurance industry was again the fastest-growing source of credit enhancement for first-time homebuyers within the mortgage industry.”

“In contrast, the FHA program is beginning to contract,” he said. “These trends suggest that the private mortgage insurance industry will likely become the largest source of credit enhancement for the first-time homebuyer market soon, taking over from the FHA.”

Rent vs. Buy


Typically, the biggest financial decision of anyone’s life will be the purchase of a home. There are advantages and disadvantages to renting and owning, and most of the financial benefit to owning a home may not be obvious to people. 

Most people evaluate the rent vs. buy decision strictly from a cash-flow perspective, which is a huge mistake.  If you are paying $2,500 a month in rent and do not want to downgrade your amenities in a home, you might have to pay $3,200 to $3,500 per month for a similar home.   This payment includes principal, interest, taxes and insurance (and possibly homeowner association dues or Mello Roos).  The property taxes and mortgage interest you pay when owning a home are tax deductible and this has a real dollar benefit to you which begins to close the gap on the cash flow difference referenced above. Also, when you own your own home you are establishing a “forced savings” account, since you will be paying principal each month.  This reduces the amount you owe and increases your net worth each month you make your mortgage payment.  Lastly, you can achieve more wealth when the value of your property increases.  Over the last 42 years, the housing market has experienced an average annual gain of almost 5% per year.  This average gain includes the recessions experienced too! 

There are many rent vs. buy calculations that can be done for your specific circumstance.  Comparing your options to continue renting, or purchase your own home is easy, and won’t cost you anything. 

The Truth About Interest Rates

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Generally, one of the first few questions a borrower asks me is “what is the interest rate?”.  Obviously, this is a major component to a mortgage and one of the top things a borrower will look at when deciding on which lender to choose.  I find that most borrowers are asking this question too early in the process, which is a big mistake and the reason I am writing about it.  First, the interest rate changes every day.  As the home search begins, it is normal for the scope to be large and narrow up until the point you are ready to make an offer.  Many things will change along the way and most of these impact interest rates.  You should be looking for a mortgage partner who has access to all types of loan programs, has competitive interest rates, and can guide you to the finish line. 

In the San Diego market, we are seeing low inventory and high demand.  All indications suggest this will continue into the near future.  Of course, anything can change at any point.  When it is time to lock in an interest rate (generally this is done once you are in escrow and not before), make sure you get a true “apples-to-apples” comparison.  Many lenders will show you a lower rate than market and load points and fees into the rate.   I find this misleading and always start the conversation with the rate that has no points associated with it.  Paying points to buy-down your rate often does not make financial sense as the break-even point can be too far into the future.  Not to mention, there is an offset on your tax return for mortgage interest so it doesn’t always benefit you to have a lower interest rate. 

Would you pay $10,000 to buy-down your rate to save $60 per month?  I wouldn’t.  That is a break-even point of 166.7 months or almost 14 years.  The statistics show that an average borrower is in their loan for roughly 7 years.  This means they find opportunities to refinance after they have closed on their purchase OR they sell their house around the 7-year mark.  If your break-even point is only 4 years, I believe it is still arguable whether you would pay points to buy-down your rate.  If you are almost certain you will be in your home for 10 years or more, then I would agree to pay points for a lower rate if your break-even is 7 years or less.  So many things change in people’s lives and environment that make it difficult to predict the future.  Remember, money now is better than money later.