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Two new studies paint differing portraits of first-time homebuyer activity

Two recent housing-market reports draw opposite conclusions about the participation rate of first-time homebuyers — a group considered key to the continued recovery of the housing and mortgage markets.

On the one side, the National Association of Realtors (NAR) reported on Wednesday that the percentage of first-time buyers purchasing homes remained flat in March, at 30 percent. That figure is low by historic standards and hasn’t moved much since the downturn.

NAR Spokesman Adam DeSanctis said the share of first-time homebuyers should be closer to 40 percent in a healthy market. Aside from its monthly survey of Realtors, NAR also surveys borrowers once a year. Its annual survey of buyers was fairly consistent with recent monthly surveys, showing that 32 percent of people who bought houses that year were first-time homebuyers.

“They are both telling us the same thing, that first-time buyer share is depressed,” DeSanctis said. “It is pretty consistent, even since the downturn.” 

DeSanctis cited rising home prices and a lack of affordable homes as factors in keeping down the number of first-time buyers.

On the other side, the conservative-leaning American Enterprise Institute’s (AEI) International Center on Housing Risk, said the first-time share is healthy and growing, based on its evaluation of millions of government-guaranteed loans.

In March, first-time buyers accounted for 57.7 percent of primary owner-occupied home-purchase mortgages with a government guarantee, up from 56.9 percent in March 2015, AEI said.

“Relative to recent history, it is a very strong share,” the center’s co-director Ed Pinto said. “The volume is incredibly strong. It is up 21 percent over last year in terms of home loans. For first-time homebuyers, that is a huge increase.”  

The wide gap between the studies is, in part, due to how each defines a first-time buyer. NAR’s monthly survey asks Realtors to report back on how many of sales involved first-time buyers. This typically is interpreted as a new buyer who has never owned a home before.

AEI, by contrast, has adopted the government’s definition of a first-time buyer as a person who hasn’t owned a home in three years. The government-guaranteed loans contain a tracking field that identifies these borrowers.

FHA numbers surged last year

RealtyTrac Vice President  Daren Blomquist said a surge in Federal Housing Administration (FHA) loan counts and volumes last year suggests that first-time homebuyers have been more active.

“FHA is a really good barometer of first-time homebuyer activity,” Blomquist said. “What we are seeing in the trends with FHA sales is that they are up 13 percent year over year in the first quarter.”

Rising home prices have likely kept some buyers out of the market in high-priced metros, Blomquist said, but home affordability is not a widespread enough problem to depress the entire first-time homebuying share. He also said credit conditions don’t appear to be an issue.

“First-time homebuyer numbers are increasing as a share of the market,” Blomquist said. “I think it is happening despite the tighter standards.”

Based on the gap in their numbers, NAR and AEI have drawn different conclusions about market trends and where public policy should go.

In a press release, NAR President Tom Salomone, a Florida real estate broker, said credit conditions were still tight and the government should cut the FHA annual insurance premiums and end a provision that borrowers have to keep the insurance for the life of the loan.

AEI’s Pinto said credit conditions are loose and that a further cut to the FHA insurance premium would be unnecessary and bad public policy. 


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