A Closer Look at a Record-Breaking Year

Last year was a record-breaking year within the housing market—low interest rates, high demand, low inventory, high home prices, and home price growth, to name a few of the all-time and longtime highs and lows recorded in 2020. Thanks to government and agency programs, the foreclosure rate is low, even as delinquencies are way up.  It also turned out to be the best year on record for first-time homebuyers. In fact,  2.38 million Americans reportedly became first-time homebuyers in 2020, which is up 14% from the same period a year ago.

Genworth Mortgage Insurance's Chief Economist Tian Liu dives into trends' causes and effects in the company's fourth-quarter and full-year 2020 report.

“Out of 2020 came a housing boom with rapidly rising home prices and a new construction boom in single-family homes," Liu said. "More recently, despite the COVID-19 pandemic and a deep recession, the U.S. housing market has staged an unexpected and strong rebound in the second half of 2020, resulting in a record number of first-time homebuyers,” Liu said.

She added that the pandemic and resulting economic impact increased housing demand in many ways.

"Working from home, remote learning, and other social distancing measures have forced homes to become the end all be all, ultimately resulting in an increase in a home’s value to homebuyers. Large expenditures on travel, leisure, entertainment, and personal services have decreased significantly throughout the pandemic, freeing up disposable income to be used toward housing."

While the unemployment rate has increased overall, its impact, Liu says, "has been more muted on higher-income earners who are more likely to become potential homebuyers—so the job losses have had less effect on housing."

She also spoke about the effect of pandemic-related forbearance programs, which, she says, might have benefitted some home shoppers, possibly influencing opportunities and behaviors. 

Not only has foreclosure moratoria and forbearance allowances kept many in their houses, forbearance programs on student loans, credit cards, and auto loans, temporarily reduced debt repayment for some.

"The real estate and housing finance industries have successfully maintained the functioning of the housing market by reducing the amount of face-to-face interactions in homebuying, selling, and financing," the economist says. "The forbearance program in the mortgage industry prevented foreclosures by borrowers impacted by the pandemic and helped stabilize the housing market. Finally, fiscal stimulus under the CARES Act helped to maintain spending and income levels, which prevented spillover from the public health crisis into a broader economic and housing crisis. Together, all of these factors made 2020 the best year on record for the first-time homebuyer market."

Some further takeaways from the Genworth report include:

• 657,000 single-family homes were purchased––up 26.4% from a year ago; First-time homebuyers reached 2.76 million (seasonally-adjusted annual rate) in Q4, their fastest pace on record.
• For the full year, first-time homebuyers represented a higher percentage of homebuyers (40% vs. 38% in 2019) in the single-family housing market, and a higher percentage of purchase loan borrowers (56% vs. 55% in 2019) in the mortgage market.
• The aging of the millennial population implies that the increase in first-time homebuyers over the age of 30 may lead to an overall increase in the number of first-time homebuyers in the 25-44 age group, which could be in the order of 580,000 first-time homebuyers over five years.
• Affordability conditions remained favorable for first-time homebuyers compared to the pre-pandemic period in 2019. Rapid growth in housing demand and rising home prices were powerful incentives for homebuilders to ramp up production with single-family housing starts increasing by 18 percent during Q4’20 to a seasonally-adjusted annual rate of 1.23 million units, the highest quarter since the fourth quarter of 2006.
• These mortgages financed 1.94 million (81 percent) first-time homebuyers in 2020, up two percentage points from 2019; The biggest year for the low down payment mortgage market in history.
• 899,000 first-time homebuyers used conventional mortgages with PMI to finance their first home purchase in 2020, up 25 percent from a year ago.