Repeat-buyer pullback primes first-time buyers for market domination

But first-timers face prices that are likely to keep going up

Repeat-buyer pullback primes first-time buyers for market domination

First-time homebuyers have dominated the mortgage market for the past 10 years, and current conditions support the view that this will not change anytime soon, according to an analysis by the Urban Institute.

The surge in first-time homebuyers’ market share since the housing crisis was driven primarily by the pullback among repeat buyers. The Urban Institute noted that repeat buyers accounted for anywhere from 1.4 to 1.8 million home purchases per year between 2001 and 2007, with first-timers responsible for between 900,000 and 1.3 million. By 2017, the two groups have changed places. Repeat buyers bought just more than 1 million homes, while first-time buyer purchases almost reached 1.5 million homes.

According to the analysis, it is unlikely that buying activity will return to historic levels because of the ultra-low-rate mortgages many homeowners locked in on during the recession. While mortgage rates were consistently below 4% then, they are closer to 4.6% today. Repeat homebuyers would pay an additional several hundred dollars every month if they decide to move to a bigger home.

With many homebuyers finding it much more economical to stay in their existing homes, repeat buying volumes are likely to remain low. As a result, first-time homebuyers will likely have to face higher and higher home prices given that existing homeowners won’t release their starter homes into the market and new construction is failing to make up for the deficit.

 

Related stories:
Millennials' view of homeownership plummets
CoreLogic: June home price increases thwart prospective millennial buyers