AEI: “The First-Time Buyer is Alive and Well in Today’s Home Purchase Market”

The first-time buyer volume of government-guaranteed home purchase loans spiked year-over-year in August, largely driven by eased lending standards and an improved labor market, according to data released by the AEI International Center on Housing Risk on Wednesday.

First-time buyer loans increased by 14 percent over-the-year in August, and they experienced an even larger increase when compared to August 2014, according to AEI.

“Contrary to news reports, the first-time buyer is alive and well in today’s home purchase market,” said Ed Pinto, co-director and chief risk officer of the AEI International Center on Housing Risk. “Compared to two years earlier, the first-time buyer share for August is up 2.5 percentage points, while total first-time buyer volume has surged 39 percent.”

The default risk on these loans remained unchanged from a year ago, however. AEI reported that its First-Time Buyer Mortgage Risk Index (FBMRI) stayed flat in August at 15.6 percent, meaning that an estimated 15.6 percent of these first-time buyer agency purchase loans are likely to default if the financial market experiences stress similar to that of 2007.

While the FBMRI stayed flat over-the-year in August, it was still 6.4 percentage points higher than the repeat buyer MRI—a larger gap between the two than the 6.0 percent reported for August 2015, according to AEI.

The risk on FHA-insured first-time buyer purchase loans reached a series high of 24.8 percent in August, an over-the-year increase of 1 pull percentage point.

The combined share of first-time buyer purchase loans (both agency and private sector) in August was 50.8 percent, a slight decline over-the-year from 51.2 percent in August 2015, AEI reported.

Nationally, median home prices are increasing relative to median household incomes, erasing approximately one-third of the drop from 2006 (when affordability peaked) to 2012 (when affordability hit a trough), which is constraining affordability, according to AEI.

“House prices will continue to rise as long as long as too much demand keeps chasing too little supply,” AEI Research Analyst Tobias Peter said. “Therefore proposals such as lower mortgage insurance premiums or higher loan limits, will only stimulate more demand, worsening affordability—not improving it.”