Dramatic rise expected in number of first-time homebuyers

A new report from consumer credit bureau TransUnion forecasts a big influx of first-time homebuyers on the horizon.

TransUnion anticipates at least 8.3 million first-time homebuyers will enter the U.S. mortgage market between 2020 and 2022. It’s a significant increase compared to the 7.6 million first-time buyers from 2016 to 2018.

In fact, according to TransUnion senior vice president and mortgage business leader Joe Mellman, it’s the largest cohort of first-timer buyers set to enter the market since the Great Recession. And it could be even larger, as TransUnion estimates the surge could grow to 9.2 million if economic growth exceeds expectations.

Age is a factor for the projected inflow of buyers, as more of the younger cohort of millennials enter a prime homebuying window. According to Mellman, market conditions are ripe for younger consumers to enter the homebuying fray as home-price appreciation is slowing, while the U.S. is experiencing near record-low unemployment levels and a favorable interest rate environment.

“You have more people working and, equally important, wages are actually growing above inflation,” Mellman said. “This is kind of a relatively recent trend — we had this long time where we were kind of breaking even with inflation, which means people don’t actually have more money.

“Now we’re actually seeing people have more money and that’s projected to continue into the near future. And you have interest rates that, best guess, are going stay relatively low, so all these things are kind of conspiring to help the housing market.”

Mellman noted that significant headwinds exists that could prevent first-time buyers from contributing to homeownership rates. Prices remain high and wage growth, while above inflation, remains sluggish. Notably, there is a persistent housing-supply problem, something that could be exacerbated by the ongoing wave of refinances.

“Now with this refi boom, everyone’s locked into these very low interest rates,” Mellman said. “So, there’s going to be particular sensitivity. … In the longer term, as we see interest rates rise up, we want to keep a close eye on whether [recent first-time buyers who have refinanced] are actually going to vacate these starter homes, because they’ll have such a low-interest mortgage. That could be something, but I think that’s going to be down the road.”

TransUnion’s analysis comes during a time when overall homeownership growth has been tepid. As of second-quarter 2019, 68.3 million consumers carried a mortgage balance — virtually unchanged from the 68.2 million in second-quarter 2018, but down considerably from the 73.1 million with a mortgage balance in second-quarter 2010.

Meanwhile, a separate TransUnion survey found that many prospective homebuyers are still undereducated, or misinformed or intimidated about purchasing a house. Of the 943 respondents who have never owned a home and expressed interest in buying one in the next three years, only one-third said they actually understood the homebuying process, while a mere 1% said that the process was easy. Moreover, 41% said they believe a high downpayment is required to buy a home, 34% indicated they were not familiar with any mortgage financing options, and two-thirds were not familiar with Fannie Mae and Freddie Mac.

With such a large group of first-time buyers rapidly approaching, Mellman said the educational disconnect represents a chance for mortgage brokers and lenders to carve a healthy market share via effective marketing and education.

“There is a broad opportunity to educate these folks,” he said. “And, especially with younger people, they really expect personalized messaging. They do not respond nearly as well to generic messages that are just blasted out to everybody equally.

“They’ve grown up with devices that know them, and with Uber and Amazon and these other nonfinancial institutions that do a very good job of personalizing their experience. When we think about financial education, we kind of have to take a note. We have to take some examples from that.”


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