First-time buyers accounted for nearly half of homebuyers taking out mortgages in January, improving just slightly from December, according to a metric released by the American Enterprise Institute [1] (AEI).
AEI's measure [2] stands in contrast to data put out by the National Association of Realtors (NAR), which estimates that first-time buyer share has hovered at or around 30 percent for the last year. NAR's reading is based on a survey of homebuyers and sellers, while AEI's figure comes from a dataset of government-guaranteed purchase loans, as well as assumptions made regarding non-agency lending.
"January's results show that first-time buyer volume and share remain strong, consistent with seasonal trends," said Edward Pinto, codirector of AEI's International Center on Housing Risk, which puts out the monthly first-time buyer index.
Isolating only the pool of purchase mortgages guaranteed or insured by the GSEs or the government, AEI estimates the share of first-time buyers was slightly higher at 56 percent. Whether looking at the total number of entry-level buyers or just the agency pool, the group says first-time buyer share has showed no trend in the last 22 months when accounting for seasonal variation.
Going by agency, the Federal Housing Administration (FHA) saw the largest share of mortgages going to first-time homebuyers, holding steady at just above 80 percent. Rural Housing Services followed at around 75 percent. Far lower on the scale were the Department of Veterans Affairs (50 percent), Fannie Mae (45 percent), and Freddie Mac (less than 40 percent).
FHA has consistently been at the high end of the scale since late 2013, a fact that Pinto says has contributed to the agency's high share of mortgage risk. According to a separate monthly index released by AEI, the share of FHA loans that would be at risk of default if the economy went off track is close to 24 percent, about four times the percentage the institute says is acceptable for a stable market.
In the wake of FHA's recent reduction to mortgage insurance premiums—and the Federal Housing Finance Agency's (FHFA) push for low down payment offerings—Pinto says the government is steering the market in a risky direction.
"Policy makers need to be mindful of the risk [layering] that is occurring with respect to first-time buyers," he said. "Recent policy moves by the FHA and FHFA will likely exacerbate this trend."