Genworth Mortgage Insurance Q1’18 Report: First-Time Homebuyers Pull Back For The First Time Since 2014

Data indicates easing in first-time homebuyer demand
Builders beginning to move down the pricing curve, but still above key price point

Genworth Mortgage Insurance, an operating segment of Genworth Financial, Inc. (NYSE: GNW), today released its First-Time Homebuyer Market Report for the first quarter of 2018. The report aggregates all publicly-available government data and proprietary mortgage industry data into one dataset. The below highlights are followed by analysis from Genworth’s Chief Economist, Tian Liu.

Q1’18 Overview

First-time homebuyers purchased 411,000 single-family homes, a decline of two percent from the first quarter of 2017.
First-time homebuyers accounted for 37 percent of single-family homes sold and 57 percent of purchase mortgages financed.
Home sales without financing (all-cash transactions) and purchase loans made by investors were up 11,000 units, or three percent from a year ago suggesting an increase in speculative demand and otherwise a more competitive environment among potential homebuyers.
For the first time since the first quarter of 2012, home sales grew faster than home purchase originations. The number of purchase loans for the purchase of owner-occupied homes were down 2 percent from a year ago, while home sales stayed flat.
In the first quarter, 81 percent of first-time homebuyers used low down payment mortgages, while only 19 percent used high down payment mortgages.
Low down payment mortgages financed 332,000 home sales to first-time homebuyers, a one percent decline from a year ago, and represented 69 percent of purchase loans originated, the highest since the first quarter of 2010.
Conventional loans with mortgage insurance financed 127,000 home sales to first-time homebuyers, an 18 percent increase from a year ago, marking the 27th consecutive quarter of growth for the mortgage insurance industry and the best first quarter since 1995.
Among new single-family homes, homebuilders reported rapid sales growth in homes priced between $250,000 and $300,000, an increase of 17 percent from the first quarter of 2017 (the median first-time homebuyer price range is $250,000 and below).
2018 Macro Outlook

Higher mortgage rates have increased the cost of financing, and may have contributed to lower home sales.
Despite the increased homebuilding activities at the “lower” end of the market, the supply response has been insufficient in easing inventory pressure.
Contrary to most forecasts, we believe that strong first-time homebuyer demand and an insufficient supply increase will keep home prices growing at their current pace.
Housing supply will continue to expand to meet the strong first-time homebuyer demand. In addition to new construction, we will also likely see the conversion of rental units back to owner-occupied properties, lower vacancy rates, and increased remodeling activities.
Comments from Tian Liu, Chief Economist, Genworth Mortgage Insurance:

“This quarter’s decline in first-time homebuyer sales reflects a slowdown in cyclical momentum as the first-time homebuyer market approached its historical norms. It also reflects a shortage of available homes priced at or below the median first-time homebuyer market price of $250,000. While for the first time since 2014 first-time homebuyer demand is slightly easing, supply pressures will continue to drive price appreciation and freeze out a large percentage of the 2.7 million first-time homebuyers who are still missing from the market.

We believe that the housing market is becoming overheated, which is supported by this quarter’s growth of all-cash transactions and purchase loans made by investors, and the corresponding decrease in first-time homebuyers. It is becoming increasingly common to see multiple offers submitted on a property, which results in purchase prices surpassing listing prices, as well as inflated home prices, making cash offers more coveted. Because first-time homebuyers prefer using debt over cash when purchasing a home, this quarter’s surge in cash purchases is a competitive disadvantage to them and helps explain their pull-back.

Despite the current headwinds, we have begun to see an acceleration of homes built at slightly lower price points, a change from the homebuilding at higher price points we have been seeing. We see this as a positive market change that will support an increase of first-time homebuyer purchases and lead to fewer buyers being priced out of the market. If this trend gains meaningful traction, new construction will play a larger role in meeting first-time homebuyer demand.

More broadly, we are not overly concerned by this quarter’s slow-down in first-time homebuyer purchase growth and remain optimistic that this demographic will continue dominating the mortgage market and growing its market share. To address the housing supply inadequacies, we call on policymakers to encourage production of new homes at lower price points by abstaining from regulations that restrict affordable housing (zoning), access to low-cost building supplies (tariffs and quotas), and labor supply (immigration).”

Data indicates easing in first-time homebuyer demand
Builders beginning to move down the pricing curve, but still above key price point

Genworth Mortgage Insurance, an operating segment of Genworth Financial, Inc. (NYSE: GNW), today released its First-Time Homebuyer Market Report for the first quarter of 2018. The report aggregates all publicly-available government data and proprietary mortgage industry data into one dataset. The below highlights are followed by analysis from Genworth’s Chief Economist, Tian Liu.

Q1’18 Overview

First-time homebuyers purchased 411,000 single-family homes, a decline of two percent from the first quarter of 2017.
First-time homebuyers accounted for 37 percent of single-family homes sold and 57 percent of purchase mortgages financed.
Home sales without financing (all-cash transactions) and purchase loans made by investors were up 11,000 units, or three percent from a year ago suggesting an increase in speculative demand and otherwise a more competitive environment among potential homebuyers.
For the first time since the first quarter of 2012, home sales grew faster than home purchase originations. The number of purchase loans for the purchase of owner-occupied homes were down 2 percent from a year ago, while home sales stayed flat.
In the first quarter, 81 percent of first-time homebuyers used low down payment mortgages, while only 19 percent used high down payment mortgages.
Low down payment mortgages financed 332,000 home sales to first-time homebuyers, a one percent decline from a year ago, and represented 69 percent of purchase loans originated, the highest since the first quarter of 2010.
Conventional loans with mortgage insurance financed 127,000 home sales to first-time homebuyers, an 18 percent increase from a year ago, marking the 27th consecutive quarter of growth for the mortgage insurance industry and the best first quarter since 1995.
Among new single-family homes, homebuilders reported rapid sales growth in homes priced between $250,000 and $300,000, an increase of 17 percent from the first quarter of 2017 (the median first-time homebuyer price range is $250,000 and below).
2018 Macro Outlook

Higher mortgage rates have increased the cost of financing, and may have contributed to lower home sales.
Despite the increased homebuilding activities at the “lower” end of the market, the supply response has been insufficient in easing inventory pressure.
Contrary to most forecasts, we believe that strong first-time homebuyer demand and an insufficient supply increase will keep home prices growing at their current pace.
Housing supply will continue to expand to meet the strong first-time homebuyer demand. In addition to new construction, we will also likely see the conversion of rental units back to owner-occupied properties, lower vacancy rates, and increased remodeling activities.
Comments from Tian Liu, Chief Economist, Genworth Mortgage Insurance:

“This quarter’s decline in first-time homebuyer sales reflects a slowdown in cyclical momentum as the first-time homebuyer market approached its historical norms. It also reflects a shortage of available homes priced at or below the median first-time homebuyer market price of $250,000. While for the first time since 2014 first-time homebuyer demand is slightly easing, supply pressures will continue to drive price appreciation and freeze out a large percentage of the 2.7 million first-time homebuyers who are still missing from the market.

We believe that the housing market is becoming overheated, which is supported by this quarter’s growth of all-cash transactions and purchase loans made by investors, and the corresponding decrease in first-time homebuyers. It is becoming increasingly common to see multiple offers submitted on a property, which results in purchase prices surpassing listing prices, as well as inflated home prices, making cash offers more coveted. Because first-time homebuyers prefer using debt over cash when purchasing a home, this quarter’s surge in cash purchases is a competitive disadvantage to them and helps explain their pull-back.

Despite the current headwinds, we have begun to see an acceleration of homes built at slightly lower price points, a change from the homebuilding at higher price points we have been seeing. We see this as a positive market change that will support an increase of first-time homebuyer purchases and lead to fewer buyers being priced out of the market. If this trend gains meaningful traction, new construction will play a larger role in meeting first-time homebuyer demand.

More broadly, we are not overly concerned by this quarter’s slow-down in first-time homebuyer purchase growth and remain optimistic that this demographic will continue dominating the mortgage market and growing its market share. To address the housing supply inadequacies, we call on policymakers to encourage production of new homes at lower price points by abstaining from regulations that restrict affordable housing (zoning), access to low-cost building supplies (tariffs and quotas), and labor supply (immigration).”