First-Time Homebuyer Share Rises in December

First-time buyers accounted for an increasing share of home purchase mortgages in December, according to an alternative measure released Tuesday.

Researchers at the American Enterprise Institute's (AEI) International Center on Housing Risk estimate that Americans buying their first home made up about 50 percent of December's purchase mortgage market, up slightly from November.

The results are a far cry from the monthly numbers put out by the National Association of Realtors (NAR), which for November estimated that first-time buyers were at a 31 percent market share. The group says that their data, which draws from a pool of millions of loans, is more representative than NAR's smaller survey.

Edward Pinto, codirector of the International Center on Housing Risk, explained why the difference between the two measures is so important.

"Discussions about homeownership and credit availability are hampered when not grounded in good measurements of loan availability and risk," Pinto said. "The NAR's flawed survey results are encouraging policy makers to repeat past mistakes on the basis of a faulty story: that few first-time buyers are entering the housing market. Our data tells a different story."

Looking only at home purchase mortgages with a government guarantee, AEI researchers say the first-time buyer share is close to 55 percent, a slight increase over November.

Going by agency, the Federal Housing Administration (FHA) continued to attract large numbers of first-timers, posting a first-time buyer share above 80 percent. That was followed by Rural Housing Services at 75 percent, the Department of Veterans Affairs at close to 50 percent, Fannie Mae at 45 percent, and Freddie Mac at less than 40 percent.

The higher share of new buyers brings with it a higher risk. Based on the performance of 2007 vintage mortgages following the financial crisis, AEI predicts nearly 15 percent of agency first-time buyer loans would default in a new stress event—about 6 percentage points higher than the group's stressed default projections for repeat homebuyers.

The researchers say the higher risk reading reflects multiple factors, including first-time buyers' higher loan-to-value ratios and long loan terms.

"Given the combination of little money down and slow amortization, these buyers will have very little home equity for a number of years unless their house appreciates substantially. In addition, about one-fifth of first-time buyers taking out mortgages had a FICO score below 660, the traditional definition of subprime mortgages, and one-quarter had total debt-to-income ratios above 43 percent, the limit set by the Qualified Mortgage rule," they said.