The first-time homebuyer market looked poised to break out in the U.S. earlier this year with millions reaching typical ages to start families and purchase homes. Then the coronavirus outbreak happened.
The number of first-time buyers who locked in a mortgage rate fell by 27% from March to April of this year, said Tian Liu, chief economist at Genworth Mortgage Insurance. The first-time buyer market, however, rebounded entirely in May 2020. Going forward, credit availability will be especially important for this borrower segment, especially for those with low FICO scores or high debt-to-income ratios, Liu said.
Liu spoke with Scotsman Guide about the first-time homebuyer market, the ongoing pandemic, and what he thinks could happen in the coming months and years.
Do you believe that the housing market will be fitful for the rest of the year?
One of the things that we have learned so far is that this is a very different recession compared to previous recessions. It is largely driven by the COVID-19 pandemic. When you look at which states suffered worse declines (in mortgage originations) in April — New York, Pennsylvania and Michigan — those states were harder hit by the virus compared to the rest of the country.
Do you expect the same declines in states that have experienced recent spikes, such as Florida, Texas and Arizona?
We have learned so much in terms of what is effective to control the virus. In Texas (after a rising number of cases), they talked about closing bars. It’s much less of a draconian shutdown of the economy compared to March, where everybody was sent home and told to stay at home. I think we have learned a lot during the last four months and I think that’s going to be helpful in this next round, even though (an increased number of coronavirus cases in the Sun Belt) is not a positive development for the housing market.
With millions still unemployed, could this have a long-term effect on first-time homebuyers’ purchasing ability?
We are in unprecedented times in terms of the unemployment rate. Millions of people are unemployed. The longer this drags on, the more structural damage the economy will suffer. In six months, 12 months, if we’re still at a rate of 7% or 8%, then this could definitely have a big impact on the housing market and on the first-time homebuyers.
Millions of people are unemployed. The longer this drags on, the more structural damage the economy will suffer.
The demographics of the first-time homebuyer market had been strong. Is that no longer the case?
The demographic continues to be very, very strong. The question is, how many of them will qualify for the availability of credit? I think the economics will play a big, big role. Going forward, it’s going to be how rapidly the economy establishes a new norm. Are we going to get back to full employment of 4% to 5% [jobless rates] or are we going to be stuck in a higher level of unemployment? I think that’s going to be the key driver.
Will credit-tightening measures continue?
It really depends on how the economy performs and that depends on how we control the virus. We have a forbearance program that will stretch between six and 12 months. I think you need to look at the level of delinquencies and foreclosures after that. Mortgage performance in the next 12 months is going to determine how much lenders feel comfortable extending credit to borrowers.
The supply of affordable homes has long hampered first-time homebuyers, so how will the current crisis play into that?
We have been advocating for homebuilders to take another look at the affordable-home segment because of the strength in the first-time homebuyer market. We saw that in 2019, with more new homes being sold at lower price segments under $300,000, and that gives us confidence that’s a growing area. Another reason that it might be a growing area is with greater adoption of working from home, the travel distance between office and home is less of a concern. Mortgage performance in the next 12 months is going to determine how much lenders feel comfortable extending credit to borrowers. ●