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First-time Home Buyer Activity Rebounds After TRID Troubles

house-keysNow that the effects from the TILA-RESPA Integrated Disclosure (TRID) rule have subsided significantly in the housing market, first-time buyer activity has resumed from the delays caused in the previous months.

The American Enterprise Institute (AEI) International Center on Housing Risk found that the share and volume of first-time homebuyers rose significantly in February 2016 compared to a year earlier.

According to AEI's First-Time Buyer Mortgage Share Index (FBMSI) released Monday, first-time buyers accounted for 56.7 percent of primary owner-occupied home purchase mortgages with a government guarantee in February 2016. This number is up from 55.9 percent last February and up from January's share of 56.1 percent.

Agency FBMSI"The first-time buyer share has been trending higher on a year-over-year basis, pushed up by improvements in the labor market, riskier mortgage lending, and continuing low mortgage rates," the report stated.

“On a year-over-year basis, the first-time buyer share increased in February, reflecting a continuation of strong first-time buyer participation,” said Edward Pinto, Codirector of the American Enterprise Institute’s International Center on Housing Risk.  “The current housing market, particularly at the entry-level, is exhibiting strong, leverage-fueled demand, which in combination with shortness of supply, will continue to drive home prices up faster than incomes and inflation.”

According to the report, the combined FBMSI, which measures the share of first-time buyers for both government-guaranteed and private-sector mortgages, totaled about 51.2 percent in February, up from 50.5 percent a year ago and up from 50.7 percent in January.

According to AEI, the number of primary owner-occupied purchase mortgages going to first-time buyers in February totaled an estimated 116,000, up 12 percent from last February. "As expected, loan volume recovered strongly in February after the TRID-related drop in January," the report said.

Combined First-Time Buyer Mortgage Share Index“We had expected first-time buyer activity to rebound from the TRID-related slowdown last month, and that is what happened” said Stephen Oliner, Codirector of AEI’s International Center on Housing Risk. “We are again seeing robust increases in loans to first-time buyers.”

The uptick among the first-time buyer share and volume provides explanation for tight inventory in the long-time seller's market.

“The typical first-time buyer these days has a relatively low credit score and puts little money down,” Oliner said.  “These facts make clear that mortgage credit isn’t tight.This risk profile for first-time buyers implies that the supply of mortgage credit to this group is not tight. In February 2016, the median first-time buyer with an agency mortgage made a down payment of only 3.5 percent, or $8,600 in dollar terms. Moreover, the median FICO score in February for first-time buyers with agency mortgages was 707, slightly below the median of 713 for all individuals in the United States with a score. For first-time buyers with FHA-insured loans, the median FICO score in February was only 675, well below the middle of the distribution for the U.S. as a whole. These data are a strong counterpoint to the frequent claims that first-time buyers face difficulties in obtaining mortgages."

Click here to view the full report.

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