Credit bureau expects increase in first-time buyers

At least 8.3 million new first-time homebuyers will enter the housing market in the near future, according to the credit bureau TransUnion.

TransUnion, which presented its findings at the Mortgage Bankers Association Annual Convention and Expo, said the number of first-time buyers entering the market between 2020 and 2022 could reach 9.2 million if economic growth exceeds expectations. Between 2016 and 2018, 7.6 million people bought their first home.

Despite this anticipated boost in activity, the number of consumers carrying a mortgage was considerably lower than it was a decade ago. There were 73.1 million people with an outstanding mortgage balance in the second quarter of 2010, while in the second quarter of 2018 there were 68.2 million.

"While we've recently seen a boom in refi activity, actual homeownership rates are down," said Joe Mellman, senior vice president and mortgage business leader at TransUnion. "Challenges have included high home prices, sluggish wage growth, and limited housing inventory. But we may be starting to see daylight as slowing home price appreciation, low unemployment, increased wage growth, and low interest rates are helping affordability. As a result, we are optimistic that first-time homebuyers will contribute more to homeownership than at any time since the start of the Great Recession."

TransUnion also polled 943 Americans in October who have never owned a home but expressed interest in purchasing one within the next one to three years. Respondents' top motivations for pursuing homeownership included more privacy (45 percent) or wanting to build home equity or wealth (44 percent). These factors outpaced life events, including getting married (24 percent) or expanding their family (23 percent), as motivators.

Asked why they might delay their home purchase, 39 percent said they would want to find a more stable job before doing so. Thirty-five percent said they would delay a purchase if they considered home prices to be too high.

Fifty-eight percent said they would delay a purchase if they had concerns about having enough money to afford a down payment or monthly mortgage payments. Sixty percent of the respondents who said they considered home prices to be too high said they would be open to moving to another city or state where prices were more affordable.

The youngest respondents, those born after 1995, were most willing to be mobile in order to purchase a home; 70 percent said they would be open to relocating. TransUnion noted how its data shows that one out of every five first-time home purchases is originated by someone who moved from another state. Just one in 10 respondents to the TransUnion survey said they would delay a home purchase because owning a home would make it more difficult to leave a location.

The survey also found that few respondents were knowledgeable about the home buying process. Only one in three described themselves this way, with just 1 percent saying they considered the process to be easy.

Even among those who said they understood the process, misconceptions were common. Two-thirds said they thought a high credit score was necessary to buy a home, 51 percent thought it would be necessary to make a down payment of 10 to 20 percent, and 41 percent thought they would need a high down payment. One-third were unfamiliar with any mortgage financing options or with government-sponsored enterprises such as Fannie Mae and Freddie Mac.

"Many of our potential first-time homebuyer respondents don't seem to be aware of the wide variety of financing options available to them," said Mellman. "It suggests there's a large opportunity for lenders to proactively identify consumers who are interested in becoming first-time homebuyers and then educating them on options they may not be aware of. Consumers may find homeownership programs that are more flexible than they originally thought, and lenders in turn can gain new customers."

TransUnion also determined that the median age of a first-time homebuyer has dropped since the Great Recession. While the typical person buying their first home in 2010 was 39, their age dropped to 36 in 2018. The share of first-time homebuyers between the ages of 25 and 34 rose by 6 percent between these years.

"There has been a lot of discussion in the marketplace that younger people today may not be as interested as prior generations in buying a home and being tied down to one location. Our survey results suggest that is not the case at all," said Mellman. "Rather, younger people may have in fact been deterred from a home purchase by challenges they faced in the financially difficult times of the last decade."

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