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50 | Th e M Rep o RT o r i g i nat i o n s e r v i c i n g a na ly t i c s s e c o n da r y M a r k e t ANALYTICS The laTesT First-time Homebuyer share rises in december Industry groups differ on their perception of first-time homebuyer share, with one industry group calling the other's data "faulty." F irst-time buyers accounted for an increasing share of home purchase mortgages in December, according to an alternative measure released in January. Researchers at the American Enterprise Institute's (AEI) International Center on Housing Risk estimate Americans buying their first home made up about 50 percent of December's purchase mortgage market, up slightly from November. The results are a far cry from the monthly numbers put out by the National Association of Realtors (NAR), which for November estimated first-time buyers were at a 31 percent market share. The group said their data, which draws from a pool of mil- lions of loans, is more representa- tive than NAR's smaller survey. Edward Pinto, codirector of the International Center on Housing Risk, explained why the differ- ence between the two measures is so important. "Discussions about homeown- ership and credit availability are hampered when not grounded in good measurements of loan availability and risk," Pinto said. "The NAR's flawed survey results are encouraging policy makers to repeat past mistakes on the basis of a faulty story: that few first-time buyers are entering the housing market. Our data tells a different story." Looking only at home purchase mortgages with a government guarantee, AEI researchers said the first-time buyer share is close to 55 percent, a slight increase over November. Going by agency, the Federal Housing Administration (FHA) continued to attract large numbers of first-timers, posting a first-time buyer share of more than 80 per- cent. That was followed by Rural Housing Services at 75 percent, the Department of Veterans Affairs at close to 50 percent, Fannie Mae at 45 percent, and Freddie Mac at less than 40 percent. The higher share of new buy- ers brings with it a higher risk. Based on the performance of 2007 vintage mortgages following the financial crisis, AEI predicted nearly 15 percent of agency first- time buyer loans would default in a new stress event—about 6 percentage points higher than the group's stressed default projections for repeat homebuyers. The researchers said the higher risk reading reflects multiple fac- tors, including first-time buyers' higher loan-to-value ratios and long loan terms. "Given the combination of little money down and slow amortiza- tion, these buyers will have very little home equity for a number of years unless their house appreci- ates substantially. In addition, about one-fifth of first-time buyers taking out mortgages had a FICO score below 660, the traditional definition of subprime mortgages, and one-quarter had total debt- to-income ratios above 43 percent, the limit set by the Qualified Mortgage rule," they said. Homebuyer demand Heats Up January Housing Market An impending reduction in FhA premiums combined with lower mortgage rates sparked an increase in interest among first- time buyers, according to Redfin. J anuary indicators suggest the housing market got off to a strong start in 2015, with inventory growth and increased demand driving growth in what's usually a chilly month for the sector. Looking at home sales data re- corded nationwide throughout the month's first three weeks, Redfin estimated the median home price for January was $266,400. While that marks a 1.2 percent decline from December, it's a much smaller drop than those recorded in the last few Januarys, and it's still higher than a year ago by 7.6 percent, Redfin said. What's different this January is both supply and demand are in much better shape than they were a year ago, said Redfin's chief economist, Nela Richardson. "More people listed their homes for sale in December than in any other December since 2008," Richardson said in a post on Redfin's website. "That much- needed inventory paired with strong buyer demand led to a solid increase in home prices in January compared with last year." For the year's first three weeks, Redfin said the number of custom- ers requesting tours with its agents was up 40 percent from this time a year ago. In just the last week alone, home tour demand was up 62 percent year-on-year. More encouragingly, the share of first-time homebuyers is on the rise. For the week of January 12, Redfin estimated 57 percent of home tours were taken by first- timers compared to 31 percent the week prior, 44 percent the month prior, and 48 percent the same week in 2014. In an email, Richardson said the announcement of an imminent re- duction in annual Federal Housing Administration (FHA) mortgage insurance premiums played a role in reviving interest among first- time buyers. She didn't discount other factors, however. "The new year is a common time for people to start kicking off their home search," she said. "First- time buyers can start their search earlier because they don't have to sell their current property first, unlike move-up buyers." Richardson also pointed to mortgage rates, which fell from already "extremely low levels" that week. While the surge in buyer demand is similar to the frenzy seen in spring 2013, there is a key difference: Buyers back then didn't have nearly as much negotiating power as they do now, Redfin said. According to the company's December data, 14.8 percent of homes sold in December went for more than their list price, the low- est percentage of any month in the past three years. "December housing activity shows us that buyers are fin- icky when it comes to prices," Richardson wrote. "They will buy, but they won't overpay."