Last week we took an early deep dive into the early estimated year-end numbers for California’s housing market. While the numbers are largely good, they’re a bit underwhelming, especially when compared to more recent post-recession boom years.
The report from the California Association of Realtors expressed concern that economic factors like mounting student loan debt and stagnant wages were keeping first time homebuyers out of the market.
This week we’ll bring some brighter news to your digital inbox. Credit report and tracking agency TransUnion has released a report stating that over the next five years approximately 17 million first-time homebuyers are projected to enter the housing market. Almost three million of those first timers are estimated to become homeowners in 2017 alone. Many of these buyers could potentially benefit from Fannie Mae’s recent adoption of consumer credit reports that incorporate trended data in its mortgage underwriting process.
“Our projection of millions of first-time homebuyers comes at a time when consumers may see increased benefits from the use of trended data in the underwriting of Fannie Mae loans. TransUnion’s CreditVision trended data offer lenders an expanded view of consumer behavior that can reveal important insights such as who pays their credit card balances in full each month. Through the use of trended data that allow lenders to view a consumer’s payment behavior over a period of time, we believe many consumers could qualify for better loan rates – possibly saving them tens of thousands of dollars,” said Steve Chaouki, executive vice president and the head of TransUnion’s financial services business unit.
TransUnion’s study also found some interesting differences in the makeup of first-time homebuyers compared to C.A.R and other researchers. TransUnion predicts that younger consumers (ages 20-39) represent an increasing majority of first-time homebuyers. In Q4 2015, consumers in this age group represented 60% of first-time homebuyers, up from 44% in Q4 2000. The youngest consumer subset observed, those ages 20-29, also have experienced major growth among first-time homebuyers, as their share has risen from 17% in Q4 2000 to 28% in Q4 2015.
The increase in younger consumers purchasing their first homes comes at a time when first-time homebuyers are comprising a historically larger percentage of purchases than they have in past. At the start of the new millennium, first-time homebuyers comprised less than half of agency and government loan purchases; by 2015, this had grown to over 55%.
“First-time homebuyers are valuable prospects in the eyes of many mortgage lenders, as that time in a borrower’s life often corresponds to additional financial needs. It is evident from trended data that first-time homebuyers show distinct credit characteristics that distinguish them from non-buyers. They often have higher credit scores than non-buyers; yet even within the same credit risk band, they are often more credit active and exhibit more credit responsible behavior. First-time homebuyers also can positively impact the economy as a whole. While they themselves can build wealth through gains in equity, along with mortgage interest and real estate tax deductions, local communities benefit from economic activity as a result of construction, remodeling and home improvement activities,” said Joe Mellman, vice president and mortgage business leader for TransUnion.
Partnering with AnswerMine, a machine-learning model development firm, TransUnion developed a model examining thousands of credit attributes and scores. The resulting “First-Time Homebuyer Propensity Model” identifies specific consumers likely to become first-time homebuyers. Using this model, TransUnion determined that there could be nearly three million first-time homebuyers over the next year.
“We are quite pleased with the model’s accuracy in identifying first-time homebuyers. In a study earlier this year, we predicted just over 500,000 first-time homebuyers for the first quarter of 2016. Looking back at that time now, it turns out that is how many first-time homebuyers there actually were,” said Mellman.
Looking over the next five years, TransUnion estimates there could be 13.8 to 17.1 million first-time homebuyers entering the housing market. These projections are based on U.S. consumers who do not currently have a mortgage, coupled with long-term estimates for growth in the mortgage purchase market and the percentage of first-time homebuyers in the agency and government purchase market.
This would add a significant number of consumers to the mortgage pool. For comparison, 6.2 million consumers opened a new mortgage in 2015, approximately three million of which were first-time homebuyers.
“It’s clear that there should be many new homebuyers in the market in the next few years,” said Chaouki. “Our hope is that, with the use of trended data, mortgage lenders can better serve these consumers. We anticipate the benefits of trended data will continue to expand to other lenders, as we believe this is the future of credit scoring.”
Certainly TransUnion and other credit reporting corporations have a vested interest in keeping credit reports and scores accurate, but if these findings prove to be true over the coming years, it would be a welcome kickstart to a real estate market that is still looking for areas of growth.
If you’re interested in buying or selling a Luxury Home in Los Angeles, please contact us now at 323-829-8811 or email Susan Andrews at susan@luxurylahomes.com.
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