For the first time since just after the turn of the century, first-time homebuyers are rushing into the housing market in droves. According to Genworth Financial’s “First-Time Homebuyer Market Report,” 601,000 first-time homebuyers purchased single-family homes during Q3 2017, up six percent from Q3 2016. This is the highest rate of first-home purchases since Q3 2000. Tian Liu, Genworth Mortgage’s chief economist, said the trend “buoyed the broader housing market” during the past quarter, which had slowed by one percent overall compared to Q3 2016.
According to Liu, two in every five single-family home purchases during the months of July, August, and September 2017 were transacted by first-time buyers, and more than half of all purchase mortgages were financed by first-time buyers. The numbers do not match because not everyone who qualifies for a mortgage ultimately purchases a house. Liu added, however, that repeat homebuyer demand is declining, with repeat homebuyers purchasing five percent fewer homes in Q3 2017 than they did the year prior.
This decline in repeat homeownership is likely due to rising home prices in most markets that have made “moving up” relatively difficult. When housing supplies are short, prices rise, which is great for homeowners. However, if those prices outpace what buyers of the existing homes can afford, then homeowners cannot afford to sell and move up into a larger or more expensive home. Until the balance is corrected, investors who can offer creative financing options to buyers at all levels will likely be in possession of a hot product since they may be able to facilitate moves that buyers want to make but cannot using conventional financing.
Down Payment Assistance
Many housing advocacy groups are also attempting to help resolve the discrepancy between home prices and what first-time buyers can afford to pay. Some states have created tax-favored down payment accounts that incentivize future buyers to save money for down payments and reward them for doing so by allowing tax breaks on the money placed in the account. Private organizations are working on this as well, and there are many down-payment assistance programs in place on local, state, and federal levels.
Recently, the Urban Institute (UI) reported that more than half of renters say that they cannot afford the down payment on a home. Likely, this number is greater than the number of renters who actually cannot afford the down payment since most people assume they will need the “conventional” 20 percent down payment and do not realize that most loans do not require this. However, the misconception is shaping how many people are actively looking for homes or considering buying them, so it must be factored in. Investors may develop a niche group of high-quality renters by reaching out to this group and offering them the opportunity to buy using a lease-option transaction in the future.