holds. Delaying homeownership thus will have long-run, negative impacts on the wealth of typical families. For example, Federal Reserve data shows that homeown- ers, on average, have 40 times the wealth of renters.” As it turns out, first-timers generate a lot of demand and the owners who benefit most are at the base of the market. “Owners of the country’s most af- fordable homes are gaining equity the fastest, because demand for entry-level homes continues to grow faster than supply,” reported Zillow in a 2018 study. Over the past five years, it added, “people who own the most affordable homes have seen their equity grow by 44.4 percent, while owners of top-tier homes have gained 26.6 percent.” “In today’s mortgage market,” Mike Fratantoni, chief economist with the Mortgage Bankers As- sociation (MBA) told the Housing News Report, “loans to buy a home comprise about 75% of the total, much higher than in recent years when we were in a refi boom. In a purchase-dominated market, first- time buyers become even more important.” But as good as first-timers are for the housing sector, a lot of po- tential sales are never made. “While the first-time homebuyer market has grown by close to 40 percent since 2014,” said Tian Liu, chief economist at Genworth Mort- gage Insurance, “there are still 2.7 million missing first-time homebuy- ers. They represent vast, largely un- tapped opportunities for the housing industry over the coming years.” The big question, of course, is whether purchases by first-time buyers can be increased.
FIRST-TIME BUYER MARKET SHARE EXISTING HOME SALES
YEAR 2018 2017 2016 2015 2014 2013 2012 2011 2010* 2009* 2008 2007 2006 2005 2004 2003**
33% 34% 35% 32% 33% 38% 39% 37% 50% 47% 41% 39% 36% 40% 40% 40% 42% 42% 42% 42% 41% 38% 30% 37% 44%
How Fewer First-Time Home Buyers Threaten the Real Estate Market
“First-time homebuyers help determine the health of the overall housing market,” explains Rob Chrane, CEO at Down Payment Resource. “New buyers often purchase the entry level housing stock, allowing repeat buyers to move up to a new home.” According to Robert Dietz, chief economist with the National Asso- ciation of Home Builders (NAHB), “first-time buyers have a strong long-run impact because they lift the homeownership rate, which up until the first quarter of 2019 had posted two-plus years of gains. Additionally, economic research shows that housing wealth is a ma- jor component of the savings and wealth of typical American house-
2001 1999 1997 1995 1993 1989 1987 1985 1981
BY PETER G. MILLER Y ou can’t have home sales without buyers and the most important buyers of all are first- time purchasers. While it might seem that a sale is a sale, that’s not the case. The chain of transactions that powers the housing sector be- gins with first-time buyers. Unfortu-
solution for millions of owners now trapped in underwater properties?
nately, first-timers are a vanishing species and as a result, millions of transactions are missing from the real estate marketplace. Why has ownership become less interesting to potential first-time pur- chasers and what can be done about it? Could first-time buyers become the
THE FIRST-TIMER PARADOX First-time buyers are important because they represent additional demand.
Source: National Association of Realtors *Special tax break for first-time buyers **Survey taken irregularly prior to 2003
6 think realty housing news report
august 2019 7
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