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Read below for iEmergent's latest opinion about the 2019 mortgage market, and the potential impact of falling interest rates over the last 4 months.
For years, iEmergent has been studying the first-time homebuyer (FTHB) segment of the mortgage market. The segment is attracting an increasing amount of industry interest; yet, consistent and reliable data about it are difficult to obtain. The Home Mortgage Disclosure Act (HMDA) data, the most comprehensive source of mortgage loan data, do not indicate whether a home purchaser is a FTHB or a repeat buyer. Other sources reporting on this issue are based on a small sampling of the market through surveys, and some of those aren't based on the purchasers themselves, but rather on the opinions of their real estate agents. Thus, at the national level, there are apparent conflicts in industry FTHB data reporting; and at the market level, there aren’t much publicly available data at all.
For lenders trying to target this important market segment, this information is critical. FTHBs come from non-homeowner households, and many are under 40 years old. There are pockets of non-homeowner households ready to buy homes within all population centers, though where these households buy their first homes is often not where they previously lived. (Most typically, they do not buy within the same tract or zip code, although they do almost always buy within the same Core-Based Statistical Area (CBSA.) Combine these facts with widely disparate home value patterns across markets that have been exacerbated by the financial turmoil of the last decade, and it is easy to see how difficult evaluating this market segment might be.
With this in mind, we have developed a FTHB model of the home purchase market. As we do with our core purchase forecast and segmentation work, we use a bottom-up approach to analyze this market segment, which starts at the county level and works up through CBSAs, states, and ultimately, to the national level. It is based in part on Census Bureau-based demographic data of households including age (of heads of households) and income. It also uses market level home value data.
FTHBs are households that are not current homeowners. (A current homeowner that is buying a home is classified as a “repeat buyer.” And if, in addition, he or she is buying a second, third or other home, he/she is also considered an “investor.”) However, there is a wrinkle with FTHBs of the current era: some of them are not actually buying homes for the first time. In the last ten years, over 8 million households lost their homes to foreclosure, short sale, or deed-in-lieu transactions. Some of these households are finding their way back into homeownership, especially in the last few years. In their loan applications, if they haven’t owned a home within the last 3 years, they will be classified as FTHBs.
This year, iEmergent estimates there will be 4.4 million purchase loans originated, 42% of which will be from FTHBs. Over the next few years, we project this FTHB segment will continue to trend upwards.
How will those FTHB home purchasers finance their homes? Since the biggest constraint of a typical first home purchase is the down payment, virtually all FTHBs gravitate to the low down payment programs backed by GNMA, Fannie and Freddie. They just won’t have the household wealth to make the kind of down payment necessary to get a jumbo loan.
Our analysis of this year’s expected loan distribution concludes that over half of government loans originated will be from FTHBs and over a third of conforming loans will be from FTHBs. From just the FTHBs’ perspective, these statistics mean almost 60% of FTHB purchase loans will be from the conforming segment. But it shouldn’t be surprising to hear that within different markets, those shares will vary considerably.
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