Millennials Driving First-Time Homeownership

February 3, 2017 | First-Time Home Buyers, Mortgage Loan

First-time homebuyers, particularly the younger generation dubbed millennials, are getting off the sidelines and buying homes in greater numbers, the National Association of Realtors (NAR) says.

The share of home purchases by first-time buyers rose to 35 percent this year, which was up from a near 30-year low of 32 percent in 2015, according to NAR’s 2016 annual survey of buyers and sellers. Prior to this year’s results, the first-time homeownership share had fallen for three consecutive survey years.

One positive sign is that an increasing number of millennials in their late 20s and early 30s are getting better jobs, moving out of their parents’ homes and buying houses, said Jessica Lautz, managing director of NAR’s survey research and communication.

“Millennials are starting to age,” Lautz told Scotsman Guide News. “As they start to age, we could start to see more first-time homebuyers in the market.”

The share of first-time buyers, however, is still running below the historical survey average of 40 percent. NAR said that tight inventories of affordable houses and rising home prices have thrown up obstacles. Respondents said debt loads were delaying home purchases by a median of three years. NAR’s survey found that 40 percent of the first-time buyers in the survey indicated they were carrying debts. The average debt load was $26,000.

“We do see that the first-time homebuyers that are successful in the market are overcoming these obstacles, and they do still have them,” Lautz said. “Many of them do still have student-loan debt when they go to purchase a home.” She said that these challenges are being offset somewhat by rising incomes.

NAR’s survey findings are based on roughly 5,500 responses from buyers of primary homes to a questionnaire mailed in July. The survey findings are consistent with the movements of the homeownership rate as reported by the U.S. Census Bureau. In the third quarter, the homeownership rate for buyers under the age of 35 rose 1.1 percentage points, to 35.2 percent, the highest rate since late 2014, but still one of the lowest on record for that age group.

The overall homeownership rate has been hovering near a 50-year low. The rate rose six basis points, to 63.5 percent, in the third quarter, however, the Census Bureau reported.

Mixed data on government loans 

NAR’s survey findings don’t appear to agree with the trends in Federal Housing Administration (FHA) loan shares, which have dropped back since mid-year 2015. The FHA program tends to be popular with first-time homebuyers because of its low downpayment option and more flexible guidelines.

The FHA share of home-purchase originations rose to nearly 20 percent in mid-year 2015 after the government cut its insurance premiums, but that share has since fallen back to 17.5 percent  in the second quarter of 2016, according to Attom Data Solutions. Before the most recent dip, the FHA’s share of purchase originations has risen from around 13 percent share in 2011.

“That [percentage share] is actually down from a year ago, but there has been a gradual upward trend since that FHA number bottomed out in the fourth quarter of 2011,” said Daren Blomquist, vice president of Attom Data Solutions.

“Based on this, I would say we have seen increased participation in first-time homebuyers, but it has actually pulled back a little bit in the first half of this year,” Blomquist told Scotsman Guide News. Blomquist noted that Veterans Affairs (VA) loan share has  been rising. VA loans are also a popular choice for first-time homeowners who can qualify for a VA loan.

The American Enterprise Institute’s International Center on Housing Risk reported this week that the first-time homeowner share of purchases (defined here as a person who hasn’t owned a home within three years) at closer to 51 percent in July, which is essentially unchanged from last July. AEI says the share has varied based on seasonal trends, but is up 2.5 percentage points compared to three years ago. AEI’s number is based on government and enterprise loan data, which contains a tracking field to identify first-time homebuyers.

In another key finding, NAR said the share of single-women buyers rose 2 percentage points, to 17 percent of the overall market. Single women are the second most important buying group after married couples, and far outpace single men despite facing a significant wage gap. Single men represent just 7 percent of the homebuying market,

“They [single women] actually have lower incomes than all other types of households, lower than single males and lower than unmarried couples as well,” Lautz said. “To get into an ownership position, they do have to make financial sacrifices to get there and perhaps save for a longer period of time.”

Originally posted at Scotsman Guide