Photo: Robert Clark

A surging economy has first-time US homebuyers outnumbering repeat buyers in the mortgage market, with the gap between the two sects of buyers widening.

Repeat buyers are saving money by staying in their homes longer as mortgage rates and home prices rise, according to a report released yesterday by the DC-based think tank Urban Institute.

“First-time homebuyers face a difficult housing market with high prices, low supply, tight credit, and renting costs that make it difficult to save for a downpayment,” Urban Institute writes in the digital release.

The share of Federal Housing Administration (FHA) loans taken out by first-time homebuyers rose to 83 in August. Historically, first-time buyers account for around 80 percent of all FHA loans, but that percentage fell to about 75 percent during the Great Recession.

FHA loans are government sponsored mortgage loans typically used by borrowers with less than perfect credit.

At the same time, the government-sponsored enterprises’ (GSE) share of first-time borrowers is just below 50 percent. Historically, first-time buyers make up about 25 percent of all GSEs, but increased to almost 40 percent during the housing bubble.

Since 2013, the GSE share of first-time buyers has been on a sustained upswing.

GSE loans are held by private entities, but receive funding and support from the government. Freddie Mac and Fannie Mae are examples of GSEs.

And, if you combine both FHA and GSEs, the total share of first-time buyers taking out purchase loans was nearly 60 percent in 2017 — about 20 percentage points above the pre-crisis average.

It isn’t just that there are more first-time buyers, says Urban Institute. Over the last ten years there’s been a pullback from repeat buyers.

Repeat homebuyers accounted for 1.4 million to 1.8 million home purchases a year between 2001 and 2007 —  the pre-crisis years. Comparatively, first-time buyers purchased between 900,000 and 1.3 million homes during the same time.

Recently, the roles reversed — repeat buyers accounted for just over 1 million home purchases and first-time buyers bought close 1.5 million homes in 2017.

Falling house prices during the recession prevented millions of homeowners from accumulating equity in their homes, equity they have typically used to trade up to bigger homes,” Urban Institute writes in the report.

And even though home prices are back on the rise, Urban Institute doesn’t expect to see much of a shift in the share of repeat buyers in the market.

Many existing homeowners have locked in lower interest rates and trading up to a larger home could end up costing them about an additional $2,400 per year.

“Over the last two to three decades, what we’re seeing is less mobility on the national level. Less folks are moving, and with interest rates rising, it would take a lot of incentive to get some existing homeowners to sell and move,” Karan Kaul, Research Associate at Urban Institute, tells Livabl.

And the longer existing homeowners stay in their homes, the more challenging the market could be for first-time buyers — a crisis exacerbated by a national slowdown in new construction.

“If you look at the data, more new households are being formed than the amount of new construction being added to supply,” Kaul says.

Click here to read the entire report.

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