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TH E M R EP O RT | 17 FEATURE T he success of the summer homebuy- ing season typically depends on three factors: home prices, housing supply, and mortgage rates. This year, there's a fourth factor in play—the rise of the first-time homebuyer. Statistics suggest that, the larg- est group of homebuyers will be those shopping for properties for the first time. According to data from the latest 2019 SCE Housing Survey by the Federal Reserve Bank of New York, renters are seriously contemplating becoming homebuyers and that not only did they perceive the access to mortgage credit "had loosened somewhat," but the share of rent- ers saying that getting a mortgage had become easy or very easy rose "above 21% for the first time since at least 2014." Additionally, a recent study by First American found that more than half of all mortgage loans originated by government- sponsored enterprises are now for first-time homebuyers. However, traditional measures of affordabil- ity offer a somewhat misleading perspective for this demographic. "With the bulk of millennials turning 30 in 2020 and entering their prime homebuying age, millennial homebuyer demand is expected to continue to grow," said Odeta Kushi, Deputy Chief Economist for First American. "That means the markets with the most promise are those most affordable for renters looking to purchase their first homes." New Buyers Coming of Age N early 45 million people in the U.S. will reach the typical age for first-time homebuyers in the next 10 years, a recent study by Zillow pointed out. That is nearly 3.1 million more than the past decade. Giving insights into the profile of these buyers, Mark Palim, Deputy Chief Economist at Fannie Mae, said that the typical first-time homebuyer is approxi- mately 35 years old when they purchase a home, younger than repeat borrowers, who tend to be between 40 and 46 years old. "First-time homebuyers typical- ly take out smaller loan balances and buy homes within the lower price tiers," Palim said. In 2018, the National Association of Realtors' (NAR's) Profile of Homebuyers and Sellers report gave the following snapshot of a typical homebuyer: • The share of first-time buyers was 33%. • They looked for homes that had a median purchase price of $250,000. Their household income aver- aged $91,600 annually. • Eighty-two percent of these buyers purchased a single- family home and could afford a median down payment of 13%. While the NAR report found that the share of first-time buyers had fallen slightly in 2018, it pointed to signs that the number is likely to grow soon. "Low invento- ry, rising interest rates, and student loan debt are all factors contribut- ing to the suppression of first-time homebuyers," Lawrence Yun, Chief Economist at NAR wrote in the report. "However, existing home sales data shows inventory has been rising slowly on a year-over- year basis in recent months, which may encourage more would-be buyers who were previously con- vinced they could not find a home to enter the market." This growth of first-time buyers hasn't been sudden but rather a steady one, according to Liz Bryant, Retail National Sales Manager for Wells Fargo Home Lending. Apart from millennials, she listed baby boomers looking to downsize as another sizeable portion of homebuyers looking for affordable homes this season. "The retiree market has tended to be more consistent, fueled by a rising number of aging baby boomers looking to downsize and/ or relocate to warmer climates and lower tax states," Bryant pointed out. "Buyers are value-focused in both cases and are moving quickly on homes priced at or below the median price in most rapidly growing markets." The growing number of this demographic has also meant that affordability and inventory remain sizeable headwinds for these buyers to achieve their American Dream. "Homeowners are remaining in their homes longer than in the past, which means fewer homes are becoming available," Bryant said. "First-time homebuyers are concerned about the down payment needed to qualify in many markets. We continue to work with buyers to educate them about our low- down payment loan program and the availability of down payment assistance programs." "Affordability will remain a challenge for most buyers despite mortgage rates providing a measure of relief," said Tendayi Kapfidze, Chief Economist for Lending Tree. "Inventory is also a challenge, particularly at the lower price points where investors have taken a lot of properties off the market and home builders are not adding a lot of new supply." Speaking of affordability, saving for a down payment remains the biggest hurdle for this group by far. "The hurdle for buyers has always been the down payment, and as prices rapidly recovered in the early 2010s, many buyers began to gravitate towards lower down payment options," said Sam Khater, Chief Economist at Freddie Mac. "Moreover, given millen- nials are the dominant buyer in today's market, the reason that the first-time homebuyer share is elevated, housing affordability will remain by far the most dominant force holding back buyers from purchasing homes." "While the vast majority of mil- lennials want to purchase a home, high student loan debt and the lack of savings for a down pay- ment are some of the barriers to entry for them," said Randy Viars, Regional Production Manager for Planet Home Lending. However, there is hope, with certain cities in the country providing the best starting point for this group. According to Kushi, Memphis, Oklahoma City, Pittsburgh, Atlanta, and Cincinnati are the most optimal markets for these homebuyers. Then there are cities like Houston, that are particularly attractive for the middle class according to Kapfidze, who also listed Pittsburgh along with Buffalo, Dallas, and Minneapolis that remained largely affordable. Another factor that could improve affordability for these buyers in the coming months is the softening of home prices. The Price Flip-Flop T he New York Fed survey found that consumers' ex- pectations of average home prices at both the one- and five-year "Consumers most often cite high home prices as a top concern. Additionally, they are less likely to attribute homebuying pessimism directly to tight inventories, perhaps because inventory levels may not be as obvious to the vast majority who are not actively looking for a home." —Mark Palim, Deputy Chief Economist, Fannie Mae