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What Drove the Surge in First-Time Buyer Share?

saving-homesFirst-time buyer volume surged 15 percent in May and the first-time buyer share of home purchase loans continued to climb as well, according to a Tuesday report from the American Enterprise Institute [1].

The agency’s First-Time Buyer Mortgage Share Index [2] (FBMSI) found that in May, first-time buyers accounted for 59.1 percent of primary owner-occupied home purchase mortgages with a government guarantee. This is up from last May’s share of 58.7 percent.

Also according to the report, 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, continuing low mortgage rates, and a growing number of buyers who lost a home to a foreclosure or short sale more than three years ago.

“These factors, combined with a 44-month-long seller’s market for existing homes as reported by the National Association of Realtors [3], have been driving up home prices [4] faster than income,” the report stated.

Also, the number of primary owner-occupied purchase mortgages going to first-time buyers in May totaled an estimated 137,000, up 15 percent from May 2015.  May marked the 13th month of the past 14 months with year-over-year double-digit increases in first-time buyer volume.

AEI GraphThe Combined FBMSI (which measures the share of first-time buyers for both government-guaranteed and private-sector mortgages) grew slightly, to 53.2 percent, up from 52.9 percent last May.

“The 2016 spring buying season continues to be exceptionally strong for first-time buyers, as both purchase loan share and volume once again hit series’ highs for the month of May,” said Edward Pinto, co-director of AEI’s International Center on Housing Risk.  “Increasing demand pressure against a constrained supply continue to drive real home prices higher. While bullish in the short-medium term, long term prospects point to a painful mean reversion down the road.”

“First-time buyer activity has been on a steep uptrend so far this year,” said Stephen Oliner, co-director of AEI’s International Center on Housing Risk. “All signs point to a robust spring and summer homebuying season.”