Summary of Findings – Q1 2019

First-time homebuyers continue to represent a large part of the activities in the housing market.  In Q1, they represented 38 percent of single-family homebuyers and 57 percent of new purchase borrowers (figures 1 and 2).

First-Time Homebuyer Mix - Housing Market
First-time homebuyers represented 38% of single-family homebuyers in Q1 2019.
First-Time Homebuyer Mix - Mortgage Market
First-time homebuyers made up 57% of purchase borrowers in Q1 2019.

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First-time homebuyers are typically different from other homebuyers, having less income and savings, but also are more likely to buy because they are starting a family versus changing jobs, retiring, or upgrading their home.  For these reasons, the first-time homebuyer market and the rest of the housing market do not necessarily move together.  Since 2014, home sales to first-time homebuyers have accounted for most of the growth while sales to repeat buyers have been largely flat (figures 3 and 4).

Annual Home Sales to First-Time Homebuyers
Since 2014, first-time homebuyers have accounted for most of the growth in home sales.
Annual Home Sales to Repeat Homebuyers
Sales to repeat buyers have been largely flat…homeowners are staying put despite rising home values, low interest rates, and a strong economy.

The surge in first-time homebuyers is the result of two forces coming together – one cyclical, the other demographic.  The cyclical force is the unwinding of the Housing Crisis, which resulted in over three million potential first-time homebuyers delaying home purchase.  Many of these delayed buyers are coming back into the market.  This trend is reflected in the rising homeownership rate over the past few years for households headed by people under 45, which has increased from 58 percent in Q1 2015 to 60 percent this quarter (figure 5).

Homeownership Rates by Age
Many of the three million delayed first-time homebuyers are coming back into the market, driving up homeownership rates over the past few years.

The demographic force is the maturing of the millennial generation.  Like generations before them, the millennials’ propensity to buy and own a home naturally increases as they come of age.  As an illustration, the average homeownership rate increases from 35 percent to 60 percent as the head of household age goes from under-35 to between 35 and 44.  While this propensity will continue to rise later in life, the increase will be less dramatic.  The sharp increase in homeownership rate means that many Millennials have been buying in the past few years, and more will come.

Beyond first-time homebuyers, there were two parallel developments in the housing market this quarter – home sales and housing affordability.  The first development was the continued slowdown in home sales, including sales to first-time homebuyers, compared to a year ago.  This development resulted from the rapid deterioration in affordability in the second half of 2018.  That trend changed in Q1, resulting in the second development, which was improved housing affordability.  While the improvement in housing affordability did have a positive impact on home sales in Q1, it was relatively small because many homebuyers locked in at higher rates earlier in the quarter.  However, the continued decrease in interest rates in Q1 means that affordability will have more room to improve, significantly reducing the cause of the original slowdown.

Key Takeaways – Q1 2019

  1. The first-time homebuyer market continued to slow down in Q1, but still out-performed the rest of the housing market.

First-time homebuyers purchased 401,000 single-family homes in Q1, down three percent from a year ago (figure 6).  This was the first back-to-back decline in the first-time homebuyer market this cycle, dating back to 2011.

Quarterly Home Sales to First-Time Homebuyers
The slowdown in the first-time homebuyer market continued in Q1 with a 3% YoY decline.

The slowdown in the first-time homebuyer segment was less pronounced as compared to other buyers, however.  For example, home sales to repeat buyers fell by six percent year over year, and sales to cash buyers were down by seven percent.  This is a reminder that first-time homebuyers differ from other buyer groups in terms of why they buy.  Their purchase decisions are more likely driven by the fact that many are starting families and reaching their early-30s, historically the peak home-buying ages.  In fact, the importance of first-time homebuyers has increased during the past two quarters as sales to other homebuyers have slowed even more.

The slowdown in the first-time homebuyer segment spread to more states in Q1 as 38 states reported less first-time homebuyer activity compared to last quarter’s 31 states (revised) (figure 7).  Arizona, Florida, and Georgia, for example, which had reported flat or growing numbers of first-time homebuyers last quarter, reported fewer first-time homebuyers in Q1 compared to a year ago.  Only 14 states, including North Carolina, Iowa, and Connecticut, reported more.

First-Time Homebuyer Market Growth Rates by State: Q1 2019
38 states reported fewer first-time homebuyers in Q1 vs. 31 states in Q4.

Besides affordability challenges, the government shutdown in January also contributed to the slowdown in the first-time homebuyer market by disrupting lending programs such as USDA’s Single-Family Housing Loan Guarantee Program, which reported 6,000 fewer first-time homebuyers in Q1 compared to a year ago, a 30 percent decline.  But the impact of the government shutdown on the overall first-time homebuyer market appears to have been modest.

  1. Lower interest rates and slower growth in home prices helped affordability improve for the first time since 2015.

Housing affordability has been deteriorating in the past three years because home prices and interest rates have been rising together.  That trend reversed in Q1 as a slower housing market cooled home price growth and the expectation of a pause in monetary tightening pushed mortgage rates down further.  While the Freddie Mac Primary Market Survey showed a 41-basis point drop in the 30-year conventional mortgage rate over the last quarter, our data suggests a more muted decrease for first-time homebuyers with the average interest rate falling by just 15 basis points (figure 8).

First-Time Homebuyer Interest Rates
Lower interest rates in Q1 brought homebuyers back into the market.

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This is largely because government loans likely take longer to process than conventional loans, so home sales financed by government loans were locked in earlier in the quarter when rates had been higher.  In March, the gap between the average interest rate facing first-time homebuyers and the Freddie Mac conventional rate was 50 basis points.  As interest rates fully catch up in Q2, first-time homebuyers will likely see a smaller gap between the interest rate they face and what other homebuyers face, implying further savings on their borrowing costs.  The year-over-year growth rate in home values, based on the Federal Housing Finance Agency’s purchase-only index, slowed to around five percent in Q1 compared to 5.7 percent in Q4.  Many other measures of home prices have shown similar slowdowns this quarter.  Quarter over quarter, home values were largely unchanged.  As a result, it was lower interest rates that helped improve housing affordability this quarter (figure 9).

First-Time Homebuyer Mortgage Affordability Index
Lower interest rates and slower growth in home prices helped affordability improve for the first time since 2015.

The slowdown in the housing market in the second half of 2018 and its ongoing reversal once again demonstrates the importance of affordability to the housing market.  While the improvement is positive, housing affordability remains lower compared to the recent past, which will limit the rebound in first-time homebuyer demand.

  1. Low down payment mortgages remain crucial for first-time homebuyers.

 The slowdown in the housing market and the suspension of monetary tightening have created some breathing space for the first-time homebuyer market this quarter.  But first-time homebuyers remain highly dependent on affordable mortgage products and lower-priced homes.  For many, if not most, first-time homebuyers, a 20 percent down payment will always be beyond what they can save.  That is why 80 percent of first-time homebuyers used some form of low down payment mortgages this quarter (figure 10).

80% of first-time homebuyers used some form of low down payment mortgages in Q1.

Conventional mortgages, enabled by the private mortgage insurance industry, were the most widely used mortgage product for first-time homebuyers.  They were used by more than 133,000 first-time homebuyers in Q1 (figure 11), five percent more than last year.  For the past four quarters, the low down payment conventional mortgage has been the leading mortgage product for first-time homebuyers.

Q1 First-Time Homebuyer Mortgage Product Choice
Most first-time homebuyers used low down payment conventional loans than any other products in Q1.


While sales to first-time homebuyers continued to slow in Q1, we believe that the rebound in housing affordability is continuing as lower interest rates at the end of Q1 are passed to borrowers and interest rates on government loans catch up to those on conventional loans.  Home price growth also has cooled in the past few months as housing demand has slowed while inventory has increased.  Wage growth also has accelerated, giving potential homebuyers more purchasing power.  If affordability continues to improve, it should help both first-time homebuyers and repeat buyers in the current home selling season.  That being said, inventory also remains quite low in Q1, and could easily fall again once demand recovers.  It also is unclear if homebuilders will be able to increase the number of low-priced single-family homes affordable to first-time homebuyers.  Without an increased supply of affordable new homes, home prices could easily re-accelerate, slowing the growth of home sales to first-time homebuyers.  Longer term, the housing industry must find solutions to keep homes affordable without being overly dependent on monetary policy support and cooling housing market conditions.  That means looking for solutions to lower the cost of building, buying, selling and financing homes.

About Tian Liu

Tian Liu has served as Chief Economist for Enact Mortgage Insurance Corporation since 2014. He is responsible for tracking and analysis of U.S. and regional economic conditions. He authors the company’s Weekly Economic Report and provides regular updates on housing and mortgage markets. Mr. Liu began covering the U.S. housing market in 2007. His commentary on the housing market has appeared in the Wall Street Journal, New York Times, CNBC, Washington Post, and other notable publications. Mr. Liu has a Masters in Economics from the University of Chicago and an undergraduate degree in Economics from the Australian National University. He resides in Raleigh, North Carolina, with his wife and two children.

About Enact Mortgage Insurance

Enact Mortgage Insurance, an operating segment of Genworth Financial, Inc. (NYSE: GNW), is headquartered in Raleigh, North Carolina, and operates in all 50 states and the District of Columbia. Enact Mortgage Insurance works with lenders and other partners to help people responsibly achieve and maintain the dream of homeownership by ensuring the broad availability of affordable low down payment mortgage loans. Enact has been providing mortgage insurance products and services in the U.S. since 1981.

Opinions, analyses, estimates, forecasts, and other views included in these materials are those of Tian Liu, are based on current market conditions and are subject to change without notice, do not necessarily represent the views of Enact or its management, and should not be construed as indicating Enact’s business prospects or expected results. Neither Tian Liu nor Enact guarantees that the information provided in these materials is accurate, current, or suitable for any particular purpose. Forward looking statements should not be considered as guarantees or predictions of future events.