RICHMOND, Va.–The mortgage market in the U.S. remained robust during the third quarter, with first-time homebuyers quite active but also dependent on low down payment loans, according to a new report.
Genworth Mortgage Insurance has released the 14th edition of an analysis by its chief economist, Tian Liu, the First-Time Homebuyer Market Report, for the third quarter of 2020. The report aggregates all publicly available government data and proprietary mortgage industry data into one digestible report. The full analysis can be viewed here.
Among the key findings:
First-time Homebuyer Activity Increased Significantly Due to Low-Interest Rates, Greater Affordability, and Re-Ignited Appreciation of “Home”
- During the third quarter, the 700,000 single-family homes were purchased by first-time homebuyers, up 15.7% from a year ago
- The number of first-time homebuyers increased by 16.3% from the second quarter to a seasonally-adjusted annual rate of 2.55 million in Q3, the fastest pace on record
- First-time homebuyers represented 39% of single-family home sales and 58% of all purchase mortgages
Lower Interest Rates Helped Ease Housing Affordability
- Mortgage rates for first-time homebuyers decreased from 3.36% in June to 3.01% in September, the lowest interest rate for mortgages on record
- Compared to Q2, lower interest rates reduced mortgage payments by 4%, while higher home prices increased mortgage payments by 3%
First-time Homebuyers Remain Dependent on Low Down payment Mortgages
- Overall, 577,000 first-time homebuyers used some form of low-down payment mortgage products to finance their home purchase in Q3, or 82 percent of all first-time homebuyers
PMI
- Low-down payment conventional mortgages, enabled by the PMI industry, helped a record 285,000 first-time homebuyers in Q3, up 34% from a year ago
FHA
- The FHA loans program financed 195,000 first-time homebuyers during the quarter, an increase of 8% from a year ago
State-by-State COVID-19 Impact
- An overwhelming number of states reported a higher number of first-time homebuyers in Q3 compared to a year ago
- Only three states-- New York, Pennsylvania, and Hawaii—reported fewer first-time homebuyers in the quarter compared to a year ago
- For most states, the booming third quarter has erased the sharp declines in the first-time homebuyer market from Q2
- Year-to-date, 47 states and territories reported a higher number of first-time homebuyers
Repeat Buyer Market also Reported Strong Growth
- Growth in the third quarter increased by 17% from a year ago to 1.08 million units
- In the first 9 months, repeat buyers purchased a total of 2.55 million homes, down 1% compared to the same period last year
- The decrease was driven by the sharper slowdown in the repeat buyer market during Q2
‘A Remarkable Quarter’
“The third quarter of 2020 was a remarkable quarter for both the housing market and the first-time homebuyer segment, with the most first-time homebuyers purchasing homes in 20 years, and the highest level of home sales since 2006,” said Liu. “Even though the economy is still in the middle of the recession, and a large number of workers remained unemployed or unable to participate in the labor force, there was overwhelming demand for housing and homeownership from those still able to purchase a home.
“The pandemic has increased preference for homeownership as homes are serving as shelter, office, and classroom. Lower interest rates have made homes more affordable, while reduced spending on personal services, travel, and leisure has increased the share of expenditure available for housing,” Liu continued. “A shift in housing preference among existing homeowners is driving repeat buyer activities as they look for different locations and different home features. The housing boom has resulted in higher home prices and sparked an increase in new construction of single-family homes.”