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Housing Demand Declining for First Time in 4 Years

Homes sold to first-time homebuyers declined year-over-year for the first time since 2014 according to the latest edition of Genworth Mortgage Insurance’s First-time Homebuyer Market Report released on Thursday.

The report, which aggregates all publicly-available government data and proprietary mortgage data into one dataset for its results, found that in Q1 of 2018, first-time homebuyers purchased 411,000 single-family homes a decline of 2 percent from the first quarter of 2017. This set of buyers also accounted for 37 percent of single-family homes sold and 57 percent of purchase mortgages financed.

“This quarter's decline in first-time homebuyer sales reflects a slowdown in cyclical momentum as the first-time homebuyer market approached its historical norms,” said Tian Liu, Chief Economist at Genworth Mortgage Insurance. “It also reflects a shortage of available homes priced at or below the median first-time homebuyer market price of $250,000.”

Pointing to the continued pressure from inventory shortage, Liu said that while homebuyer demand was easing slightly for the first time in four years, “supply pressures will continue to drive price appreciation and freeze out a large percentage of the 2.7 million first-time homebuyers who are still missing from the market.”

The report also indicated an increase in home sales without financing or all-cash transactions, even as purchase loans made by investors increased by 3 percent from last year. These numbers indicated a rise in speculative demand and otherwise a more competitive environment among potential homebuyers.

The quarter’s growth of all-cash transactions and purchase loans made by investors also pointed to a market that was overheating according to Liu. “It is becoming increasingly common to see multiple offers submitted on a property, which results in purchase prices surpassing listing prices, as well as inflated home prices, making cash offers more coveted,” he said. “Because first-time homebuyers prefer using debt over cash when purchasing a home, this quarter's surge in cash purchases is a competitive disadvantage to them and helps explain their pull-back.”

Shortage in housing supply, as well as rising mortgage rates, have also contributed to lower home sales, the report found. Yet, contrary to most forecasts, the report said, “we believe that strong first-time homebuyer demand and an insufficient supply increase will keep home prices growing at their current pace.”

Looking at future supply trends, the report said that despite the current insufficient response in easing inventory pressure at the lower end of the market, housing supply will continue to expand to meet the strong first-time homebuyer demand.

“In addition to new construction, we will likely see the conversion of rental units back to owner-occupied properties, lower vacancy rates, and increased remodelling activities,” the report said.

To read the full report, click here.

About Author: Radhika Ojha

Radhika Ojha, Online Editor at the Five Star Institute, is a graduate of the University of Pune, India, where she received her B.A. in Commerce with a concentration in Accounting and Marketing and an M.A. in Mass Communication. Upon completion of her master’s degree, Ojha worked at a national English daily publication in India (The Indian Express) where she was a staff writer in the cultural and arts features section. Ojha also worked as Principal Correspondent at HT Media Ltd and at Honeywell as an executive in corporate communications. She and her husband currently reside in Dallas, Texas. You can contact her at Radhika.Ojha@theMReport.com.
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