First-time homebuyer market "too big to ignore" says Genworth Mortgage

Number of entry-level buyers exceeded 2 million for three years in a row

First-time homebuyer market "too big to ignore" says Genworth Mortgage

First-time homebuyers have entered the market at a record-breaking pace, according to a report from Genworth Mortgage.

First-time homebuyer market activity grew stronger in the fourth quarter of 2019, up 6% year over year. On a seasonally adjusted annual rate, the number of entry-level buyers reached 2.18 million and purchased 517,000 homes — the fastest pace since 2006.

Genworth Chief Economist Tian Liu said the growth in the number of first-time homebuyers was unprecedented in the past 26 years.

"The housing market is in the middle of a multi-year boom in the first-time homebuyer market," he said. "The market has exceeded 2 million first-time homebuyers each year for the past three years, which is unprecedented in the past 26 years. In part, this represents a long-overdue rebound from the trough earlier in the decade."

First-time homebuyers made up 38% of all homebuyers and 56% of purchase borrowers in 2019.

"The first-time homebuyer market offers important insights into the housing market," Liu said. "With 38% of home sales and 56% of purchase loans in 2019, it is a market too big to ignore. I see the trend toward more affordable homes by homebuilders and a historically large PMI market as two results of the boom in the first-time homebuyer market."

The most-sold product for first-time homebuyers was private mortgage insurance (PMI). Around 720,000 buyers used conventional mortgages with PMI to finance their first home purchase in 2019, up 5% from the year before.

Meanwhile, the pool of potential second-time increased to 8.3 million for the first time in 11 years and will grow by over three million in five years.

 Housing affordability and supply, as well as low down payments and mortgage rates, were instrumental in driving the increase, according to the report.

"The tremendous growth in the first-time homebuyer market over the past five years shows that first-time homebuyers have been busy building careers, and places with abundant job opportunities are very attractive to first-time homebuyers," Liu said. "But the sheer size of the market and the delay in expanding housing supply means that a first-time homebuyer's paradise, a place with abundant job opportunity and highly-affordable housing, is difficult to find. Markets with abundant job opportunities and acute affordability challenges also are markets with the most opportunities to expand supply and policy intervention. In the meantime, first-time homebuyers may have to compromise between job opportunities and housing affordability."