Press Release: AEI’s International Center on Housing Risk announces release of First-Time Buyer Mortgage Share and Mortgage Risk Indexes (FBMSI and FBMRI) for January 2015
- First-time buyers accounted for nearly 56 percent of primary owner-occupied home purchase mortgages with a government guarantee, up slightly from prior January
- The Combined FBMSI (which measures the share of first-time buyers for both government-guaranteed and private-sector mortgages) stood at an estimated 50 percent
- The number of primary owner-occupied purchase mortgages going to first-time buyers over the 6-month period of August 2014-January 2015 totaled an estimated 691,000, up modestly from the 674,000 mortgages over the same 6-month period in 2013-2014
- The Agency FBMRI stood at 15.10 percent, up almost a half percentage point from the average over the prior three months and up almost a percentage point from a year earlier. The Agency FBMRI is about 6 percentage points higher than the mortgage risk index for repeat homebuyers.
The First-Time Buyer Mortgage Share and Mortgage Risk Indexes (FBMSI and FBMRI) are key indicators of housing market strength 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.
In January 2015, first-time buyers accounted for nearly 56 percent of primary owner-occupied home purchase mortgages with a government guarantee, according to the Agency First-Time Buyer Mortgage Share Index (FBMSI). The January share was slightly above the revised share for December and the January 2014 share. As indicated in the chart below, the first-time buyer share has displayed no trend over its 22-month history after accounting for seasonal variation.
The chart below displays the monthly first-time homebuyer percentage by agency. As shown, the share varies widely across agencies. FHA is at the high end with a share consistently around 80 percent, while Freddie Mac is at the low end with a share generally below 40 percent.
The Combined FBMSI (which measures the share of first-time buyers for both government-guaranteed and private-sector mortgages) stood at an estimated 50 percent in January 2015. Consistent with the agency series, the broader combined share has varied seasonally but has displayed no trend over its 22-month history (see chart below).
The monthly count of agency first-time buyer mortgages (the Agency FTB Loan Count) is presented in the chart below. The number of primary owner-occupied purchase mortgages going to first-time buyers over the 6-month period of August 2014-January 2015 totaled an estimated 691,000, up modestly from the 674,000 mortgages over the same 6-month period in 2013-2014. The Agency FTB Loan Count has displayed the same pattern evident in the first-time buyer share indices ― seasonal variation with no evident trend.
The Agency FBMSI is calculated, as noted above, from a nearly complete dataset of government-guaranteed home purchase loans, which greatly reduces the risk of sample error. The near-universe of included loans stands in contrast to the 2014 survey of homebuyers and sellers conducted by the National Association of Realtors (NAR), which was based on responses constituting only 0.2 percent of all purchase loans originated during the 12-month survey period and was voluntary, with responses received from only 9 percent of those mailed the 127-question survey. Data on the importance of first-time homebuyers for non-agency loans are not available to our knowledge from any source. The Combined FBMSI is calculated from the loan-level data in the Agency FBMSI, along with assumptions for the non-agency loans that we believe to be reasonable.
The Combined FBMSI percentage of first-time buyers is much higher than that estimated by the NAR. For the July 2013-June 2014 period covered by the NAR’s 2014 survey of homebuyers and sellers, the Combined FBMSI showed an average share of 50 percent, substantially higher than the NAR’s survey of home buyers finding that first-time homebuyers took out 36 percent of the mortgages used to buy a primary residence.
“January’s results show that first-time buyer volume and share remain strong, consistent with seasonal trends. Having reliable and objective first-time buyer information that virtually eliminates sampling and selection biases should help policy makers make better policy decisions,” said Edward Pinto, codirector of the American Enterprise Institute’s (AEI’s) International Center on Housing Risk. “Other first-time buyer surveys suffer from these biases.”
“We calculate first-time buyer shares from comprehensive data provided directly by the federal housing agencies, making our indices the most complete measures currently available,” said Stephen Oliner, codirector of AEI’s International Center on Housing Risk. “This helps explain why our data tell a different story.”
AEI’s Agency First-Time Buyer Mortgage Risk Index (FBMRI) estimates the share of first-time buyer mortgages that would default in a stress event comparable to the 2007-08 financial crisis based on the actual performance of loans originated in 2007. The Agency FBMRI stood at 15.10 percent in January, up almost a half percentage point from the average over the prior three months and up almost a percentage point from a year earlier. As indicated in the chart below, the Agency FBMRI is about 6 percentage points higher than the mortgage risk index for repeat homebuyers.
The higher risk for the mortgages taken out by first-time buyers is largely due to risk layering. As shown in the table below, in January 2015, 68 percent of first-time buyer mortgages had a combined loan-to-value ratio (CLTV) of 95 percent or higher, and 96 percent had a 30-year term. Given the combination of little money down and slow amortization, these buyers will have very little home equity for a number of years unless their house appreciates 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. The mortgages taken out by repeat buyers are less risky along two dimensions in particular: a much smaller share had a CLTV of 95 percent or higher and a smaller share had a FICO score below 660.
Characteristics of Mortgages Taken Out by First-Time and Repeat Homebuyers
|CLTV ≥ 95%||30-year Term||FICO < 660||DTI > 43%|
|Source. AEI International Center on Housing Risk, www.HousingRisk.org|
“Policy makers need to be mindful of the risk laying that is occurring with respect to first-time buyers, said Pinto. Recent policy moves by the FHA and FHFA will likely exacerbate this trend.”
“The FBMRI is the only measure available to policy makers and market participants that captures the risk layering for first-time buyers,” said Oliner.
The FBMSI and FBMRI are objective and transparent measures of the first-time buyer share and the riskiness of first-time buyer mortgages, respectively, based on the millions of loans contained in National Mortgage Risk Index (NMRI) database developed by AEI’s International Center on Housing Risk. The FBMSI, FBMRI, and NMRI are updated monthly. For more information about these indexes and the work of the center, please visit HousingRisk.org.