First-Time Buyer Mortgage Share and Mortgage Risk Index Update Contrary to public perception, first-time buyers (FTB) are alive, but highly leveraged. Agency FTB volume surged 7 percent and 25 percent compared to one and two years ago, respectively. The First-Time Buyer Mortgage Risk Index (FBMRI) for Agency purchase loans stood at 16.1 percent in February, a series high and up 0.4 ppt. from February 2016. Agency first-time buyer (FTB) share reached a series high in February. FTBs accounted for 60 percent of all agency purchases, up from 59 percent and 56 percent one and three years ago respectively. An expanding economy and credit easing are offsetting higher prices, higher mortgage rates, and tight supply, allowing FTB to grow share. The First-Time Buyer Mortgage Share and Mortgage Risk Indices (FBMSI and FBMRI) are key housing market indicators based on monthly data for nearly all government-guaranteed home purchase loans, which greatly reduces the risk of sample error. By relying on millions of loans, this approach stands in contrast to traditional first-time buyer surveys based on small samples of homebuyers or real estate agents. The National Mortgage Risk Index (NMRI) measures how government-guaranteed loans with an origination date in a given month would perform if subjected to the same stress as in the financial crisis that began in 2007. This is similar to stress tests routinely performed to ascertain an automobile’s crashworthiness or a building’s ability to withstand severe hurricane force winds. An NMRI value of 10 percent, for example, for a given set of loans indicates that 10 percent of those loans would be expected to default in a severe stress event, based on the actual performance of loans with the same risk characteristics after the financial crisis. The First-Time Buyer Mortgage Risk Index (FBMRI) for Agency purchase loans stood at 16.1 percent in February, a series high and up 0.4 ppt. from February 2016. The Agency FBMRI is 6.4 ppts. higher than the repeat buyer MRI. The gap has widened 0.8 ppt. from a year earlier. Maintaining a series high, FHA’s First-Time Buyer NMRI stood at 25.1 percent in February, up 0.9 ppt. from a year earlier and up 1.0 ppt. from two years earlier (before FHA’s mortgage insurance premium cut).
“The on-going housing boom is built on the backs of first-time buyers,” noted Edward Pinto, codirector of the American Enterprise Institute’s (AEI’s) International Center on Housing Risk. “These buyers are using government guaranteed financing to take on ever greater levels of leverage to chase rapidly increasing entry-level home prices, a trend that is unsustainable over the long term,” Pinto added. Other notable takeaways from the February First-Time Buyer Mortgage Share and Mortgage Risk Indexinclude:
• 55 percent of FTB loans were subprime or high risk (MRI above 12 percent) in February, up 1.5 ppt. from a year earlier. • Median FTB downpayment in February 2017 was only 3.5 percent, or $8,300. • Fueled by solid job gains, low mortgage rates, and high and growing leverage, the national seller’s market is now in its 56th month. Median home prices for the U.S. as a whole have risen relative to median household income, retracing about a third of the drop from the 2006 peak to the 2012 trough, thus crimping affordability.
“Downpayment requirements don’t pose the hurdle to homeownership as commonly believed,” said Tobias Peter, senior research analyst of AEI’s International Center on Housing Risk. “Helped in part by various programs from State Housing Finance Agencies, 21 percent of first-time buyer purchases in February did not require any downpayment,” noted Peter. With the addition of the data for February 2017, the First-Time Buyer Mortgage Share and Risk Index cover over 5.6 million Agency first-time buyer purchase loans dating back to February 2013. The NMRI covers nearly 26.6 million Agency loans dating back to September 2012, comprised of over 12.2 million Agency purchase loans and over 14.4 million Agency refinance loans. The NMRI is published for purchase loans (with separate indices for first-time and repeat buyers), refinance loans (with separate indices for no-cash-out and cash-out refinance loans), and the composite of purchase and refinance loans.