First-Time Homebuyers, ‘Renter Millennials' Pick Up the Pace

Mike Sorohan msorohan@mba.org

December 13, 2018

Genworth Mortgage Insurance, Richmond, Va., said first-time home buyers purchased more homes in the first nine months of 2018 than in any similar span since 2005.

A separate report from First American Financial Corp., Santa Ana, Calif., noted Millennial demand for homeownership was one of the biggest trends influencing the housing market in 2018, as more "rental Millennials" under 35 years old contributed the most to overall homeownership growth in the third quarter, with millennial homeownership rising 1.2 percentage points from last year.

Genworth's quarterly First-Time Homebuyer Market Report (https://miblog.genworth.com/first-time-homebuyer-market-report-12-18/) also noted third-quarter sales to first-time home buyers outperformed overall market. The report said first-time homebuyers generally purchased lower-priced homes.

The report said first-time home buyers purchased 582,000 single-family homes in the third quarter, a 1 percent year-over-year increase. For the first nine months of 2018, Genworth reported 1.580 million single-family homes, the most during the first nine months of a year since 2005. First-time home buyers accounted for 40 percent of single-family homes sold and 55 percent of purchase mortgages originated, both higher than a year ago.

"The first-time homebuyer market once again outperformed the broader market, recording their best first nine months in 13 years and showing that the current housing cycle's fundamentals remain strong despite a broader slowdown in activity," said Genworth Chief Economist Tian Liu.

The report noted some headwinds, however. Unlike the 2014-17 period when almost all states reported more first-time homebuyer activities, only two-thirds of states reported growth in the third quarter. Monthly mortgage payments for first-time homebuyers increased by 15 percent year-over-year from higher interest rates (up 8 percent more) and higher home prices (up more than 6 percent).

Additionally, the report said new homes priced between $200,000 and $300,000 were one of the few price segments to show year-over-year growth, up by 15 percent, while demand for homes priced between $300,000 and $750,000 decreased by 5 percent

"First-time homebuyers are not immune to declining affordability, and the market has declined in 19 states," Liu said. "First-time homebuyers adjusted to declining affordability by buying cheaper homes. In previous quarters, that showed up as stronger home price gains at the lower end. This quarter, instead, home prices declined at the higher end, for the first time since the 2013-14 ‘Taper-Tantrum' event. This bears monitoring since lower prices and weaker demand could cascade into the first-time homebuyer market at the lower end."

Odeta Kushi, economist with First American, said the trend of "rental Millennials" moving into homeownership shows no indication of reversing in 2019. "As more millennials age into their early-to-mid thirties, and begin to get married, have children and form households, they will continue to be the primary drivers of homeownership demand," she said.

Since the end of the Great Recession, Kushi said, nearly seven million new rental households have formed, compared to only two million new homeowner households. "However, we're starting to witness a change in the most recent periods, with surging demand from first-time buyers," she said. "As more millennials get married and form families, millennials remain poised to transform the housing market. In fact, the housing market is already experiencing the earliest gusts of the tailwind."

Kushi added aging and the lifestyle choices that come with it--particularly marriage and children--are important factors driving homeownership demand. "That's why millennials aging into their thirties, getting married and having children will have a profound impact on the housing market."

First American estimates over the next 10 years, aging Millennials are expected to purchase at least 10 million new homes. By 2060, it is estimated Millennials will have produced more than 20 million first-time home buyers.

"Evaluated in the context of the factors above, it is not surprising that Millennials currently have lower homeownership rates compared to previous generations," Kushi said. "However, as more Millennials get married and form families, millennials remain poised to transform the housing market. In fact, the housing market is already experiencing the earliest gusts of the tailwind."

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