2018 was the best year for first-time homebuyers in 12 years

First-time homebuyers had a successful year last year despite some challenges and the market slowdown.

There were 2.07 million first-time buyers of single-family homes in 2018, up 1% from 2017 and the highest number since 2006, according to the Genworth Mortgage Insurance First-Time Homebuyer Market Report.

First-timers mostly opted for low down payment mortgages; 1.67m (80%) did so. 682,000 used conventional mortgages with private mortgage insurance (PMI) to finance their first home purchase in 2018, 53,000 more than the FHA.

“Low down payment mortgages -- and conventional loans with private mortgage insurance, in particular, play a very important role in supporting first-time homebuyers, and even more so in a market with declining affordability. The private mortgage insurance industry now serves twice as many first-time homebuyers compared to 2014,” commented Tian Liu, Chief Economist, Genworth Mortgage Insurance.

Fewer first-timers in fourth quarter

There were 480,000 first-time buyers in the fourth quarter of 2018, down 3% from the same period of the previous year, following a 1% year-over-year rise in the previous quarter.

However, the decline for repeat buyers in Q4 was more than double at 7%. 

Despite the challenges, first-timers accounted First-time homebuyers accounted for 39% of single-family homes sold in 2018, up from 31% in 2014; 56% of new purchase loans in 2018, up from 52% in 2014; and the highest level of first-time homebuyer mix in the housing market since 2000.

Lower priced homes in demand

The report notes that housing affordability deteriorated by 17% in Q4 from a year ago, due to rising interest rates and higher home values.

Homebuyers reacted by putting off buying and looking for lower-priced homes, resulting in lower prices for first-time homebuyers in Q4. This point is illustrated by lower prices paid by about 80% of all homebuyers and 70% of first-time homebuyers compared to a year ago.

“First-time homebuyers are not immune to declining affordability, as their number declined nationally and in 35 states in Q4. First-time homebuyers responded to declining affordability by taking a wait-and-see approach and opportunistically looking for lower-priced properties,” added Liu.

The median price paid by first-time homebuyers declined by 2% year-over-year to $233,600.

Looking ahead

Liu added that some first-time homebuyers may be in fear of overpaying during the slowdown which could mean it is prolonged.

“However, the improved housing affordability in the past two months, if sustained, may boost momentum by the 2019 spring selling season, which could, in turn, lead to better housing data and lift confidence in the market,” he said.

In the longer term, he believes the current slowdown should serve to remind the housing industry and policymakers of the importance of housing affordability.

“The housing industry should also take note of the resilience of the first-time homebuyer market in the downturn and offer more products and services to meet their needs," he said.