Despite growing signs that the housing market is starting to recover from the depression-like conditions of the past few years, first-time homebuyers don’t seem to be benefiting from that recovery. According to the latest Campbell/Inside Mortgage Finance HousingPulseTracking Survey results, the first-time homebuyer share of home purchases fell to 34.7 percent in October. That was not only down from the 37.1 percent share seen as recently as June, but also the lowest first-time homebuyer share ever recorded in the HousingPulse survey.
The decline in first-time homebuyers participating in the housing market comes at the same time that purchases of non-distressed properties have risen significantly this year. In fact, HousingPulse data show that the non-distressed property share of home purchases climbed to 64.7 percent in October. That was up from only 55.7 percent back in February and the highest non-distressed property share recorded by HousingPulse in its three-year history.
First-time homebuyers are the only group of buyers tracked by HousingPulse that have not seen their share of non-distressed property home purchases rise over the past five months. Current homeowners have seen the biggest jump in purchases of non-distressed properties with their share rising from 50 percent in June to 54.2 percent in October. Even investors saw their share of non-distressed property purchases inch higher from 11.3 percent to 12.2 percent over the past five months.
But first-time homebuyers have seen their share of non-distressed property home purchases fall from 38.7 percent in June to 33.6 percent in October, the HousingPulse survey results show.
One factor depressing first-time purchases of non-distressed properties is the higher–and rising–prices associated with these homes. But another key factor is the availability of financing for first-time homebuyers. HousingPulse survey respondents identify FHA, with its low 3.5 percent minimum downpayment requirement and slightly looser underwriting requirements, as the primary financing vehicle for first-time homebuyers.
“Financing of first-time homebuyers with low downpayments threatens to become a significant problem in the U.S. housing market,” said Thomas Popik, research director for Campbell Surveys. “Fifty percent of first-time homebuyers use FHA financing, but FHA insurance premiums are increasing and underwriting is becoming more strict. Private mortgage insurance has started to fill the gap, but the long-term status of private mortgage insurance is in question pending the publication of the Qualified Residential Mortgage regulation resulting from Dodd-Frank.”
Responding to a special “bonus” question in the October HousingPulse survey, real estate agent respondents reported that this year’s hike in FHA mortgage insurance (MI) premiums has taken its toll on first-time homebuyers shopping for a home. Respondents also reported that some home sellers are refusing to accept offers from purchasers using FHA financing.
In a further blow to first-time homebuyers, the FHA announced late last week that it planned to raise MI premiums by an additional 10 basis points in early 2013 as part of an effort to improve the financial condition of the cash-strapped FHA mortgage insurance fund.
The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey involves approximately 2,500 real estate agents nationwide each month and provides up-to-date intelligence on home sales and mortgage usage patterns.
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