First time homebuyers are more active but it's not all good news

by Steve Randall04 Nov 2019

First time homebuyers have been increasing their participation in the housing market and their share of new mortgage originations.

But this increase has also contributed to a rise in the number of mortgages that were delinquent within 6 months according to the Mortgage Monitor from Black Knight.

This trend has been noticed over the past 24 months with purchase loans the primary driver.

“About 1% of loans originated in Q1 2019 were delinquent six months after origination. While that’s less than one-third of the 2000-2005 average of 2.95%, it represents a more than 60% increase over the last two years and is the highest it’s been since late 2010,” said Black Knight Data & Analytics President Ben Graboske. “Early-stage GSE delinquencies currently stand at 0.6%, up two tenths of a percentage point over the past 24 months, but still 40% below the market average and 60% below their own 2000-2005 average of 1.3%.”

Graboske added that although there has been some softening in GSE purchase loan performance, it hasn’t been to the extent seen among entry-level buyers.

“All in all, first-time homebuyer originations combined between the GSEs and GNMA increased by nearly 50% between 2014 and 2018. However, whereas first-time homebuyers represent just over 40% of GSE purchase loans, they make up 70% of the GNMA purchase market,” he said.

That concentration is contributing to a more significant increase in early-stage delinquencies among GNMA loans, which saw 3.3% of loans delinquent six months after origination, up 1.2 percentage points from two years ago.

“Though still roughly half the 2000-2005 pre-crisis average, it represents the sharpest increase we’ve seen in the market in recent years,” Graboske noted. “However, performance among repeat purchasers with GNMA-securitized loans has remained relatively steady overall, with the rise more pronounced among first-time homebuyers. Rising debt-to-income ratios due to tight affordability and declining first-time homebuyer credit scores stand out as likely drivers here.”

Refinance population dipped
Black Knight’s Mortgage Monitor also reveals that last week’s rise in the average 30-year mortgage to 3.78% (up 3 basis points week-over-week) according to Freddie, has cut the population of refinance candidates down to 6.8M.

That’s a 30% drop from September’s monthly average of 9.7M, and 42% below the all-time high of 11.7M (see at the start of September). However, the refi-able population is still nearly 60% larger than this time last year. 

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