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Loosening Credit Draws First-Time Buyers Out of Hiding

frozen-creditLooser credit standards brought an influx of first-time homebuyers in November 2015.

First-time buyers made up 56.7 percent of primary owner-occupied home purchase mortgages with a government guarantee in November 2015, according to the American Enterprise Institute's (AEI) International Center on Housing Risk's First-Time Buyer Mortgage Share Index (FBMSI) released Monday.

This share of first-time buyers in November is up nearly 2 percent year-over-year from 55 percent. Since April, this share of homebuyers has improved from the prior year, which AEI believes looser credit is the direct result of job market improvements, riskier mortgage lending, and low mortgage rates.

aei“Looser credit is fueling booming first-time buyer demand,” said Edward Pinto, Codirector of the AEI’s International Center on Housing Risk. “This in combination with shortness of supply, as evidenced by a seller’s market now in its 38th month, is fueling a vicious cycle that is driving real home prices higher—up 14 percent over the last 13 quarters and spurring calls for even looser credit.”

The share of first-time buyers within the Federal Housing Administration (FHA) was just over 80 percent, while Freddie Mac's share was approximately 40 percent, the data showed. Fannie Mae's share of first-time buyers reached 43.3 percent in November.

According to the report, the combined FBMSI totaled about 51.2 percent in November 2015, a slight increase from 49.8 percent last year during the same month.

AEI stated that the unsold inventory of existing single-family homes stood at 4.8 months of sales in October, while the unsold inventory of new single-family homes represented 5.5 months of sales. Both are below the threshold for a tight market.

"The rising first-time buyer share and the strong increase in first-time buyer sales volume help explain the tight inventory conditions in the long-running seller’s market," AEI explained.

Click here to view the full report.

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