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Share of First-Time Buyers on Agency-Backed Loans Rises, But So Does Risk

ups-and-downs-graph1-300x198First-time buyers comprised 56.9 percent of primary owner-occupied home purchase mortgages with a government guarantee in August 2015, up from the 54.5 percent share last August, the American Enterprise Institute (AEI) reported in their First-Time Buyer Mortgage Share Index (FBMSI).

The share has risen above previous year levels since April 2015, reflecting improvements within the labor market, riskier mortgage lending, and continuing low mortgage rates. This and a 35-month-long seller’s market for existing homes are causing home prices to increase much faster than income.

“The strong spring 2015 home buying season has been paced by outsized gains for first-time buyers,” said Edward Pinto, co-director of the AEI’s International Center on Housing Risk. “Unfortunately, these gains are fueled in part by liberalized credit standards, which is creating demand pressure and driving real home prices higher. This will lead to future instability.”

9-22 AEI graph 2

The Federal Housing Administration (FHA) had a share of first-time homebuyers in August at or above 80 percent, Fannie Mae’s share stood at 43.3 percent, and Freddie Mac had a share of about 40 percent, AEI reported.

“FHA continues to drive the first-time homebuyer market,” Pinto said. “Its underpricing of credit is exposing a new generation of homebuyers to the perils of unsustainable loans.”

The Combined FBMSI, which measures the share of first-time buyers for both government-guaranteed and private-sector mortgages, reached approximately 51.4 percent, up from 49.3 percent the prior August.

AEI also found that the number of primary owner-occupied purchase mortgages going to first-time buyers in August totaled an estimated 156,000, up 20 percent from the 130,000 mortgages last year during this same time.

“We paint an accurate picture of first-time buyer activity by using a nearly complete census of agency loans,” said Stephen Oliner, co-director of AEI’s International Center on Housing Risk. “The NAR’s survey results are no match for the story told by millions of loans.”

The Agency First-Time Buyer Mortgage Risk Index (FBMRI) reached 15.55 percent in August 2015, up 1.3 percentage points from a year earlier, and nearly 6 percentage points higher than the mortgage risk index for repeat homebuyers, a gap that continues to widen.

The report showed that 54 percent of first-time buyer loans were high risk in August, mostly because of risk layering. This total is up from 48.5 percent a year earlier.

“It is simply not true that first-time buyers face tight credit,” Oliner said. “If you have a steady job and an ordinary credit score, you can buy a home with little money down.”

9-22 AEI graph 1

About Author: Xhevrije West

Xhevrije West is a talented writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.
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