The mortgage industry has faced numerous challenges over the last few years – high home prices, sluggish wage growth and limited housing inventory. While there are still headwinds for first-time homebuyers, our new study shows some reasons for optimism about the mortgage market.
First, slowing home price appreciation, low unemployment, increased wage growth and low interest rates are helping affordability. Primarily driven by a stronger purchase market – especially compared to 2018 when purchases were down year over year – we project more first-time homebuyers in the next three years than at any other time since the Great Recession. Based on a new TransUnion analysis, we expect at least 8.3 million first-time homebuyers by 2022, or as high as 9.2 million consumers if economic growth exceeds expectations.
Do young people want to become homeowners?
We found that young people have an interest in becoming homeowners. We conducted a national survey of consumers who have never owned a home, but expressed interest in buying one in the next three years. Our survey shows that these first-time homebuyers have similar motivations for buying as prior generations – more privacy, along with a desire to build equity and wealth.
They are also willing to move, with 70% of Gen Z consumers agreeable to moving, followed by Gen X at 65% and Millennials at 61%. This finding seems to be in line with the common narrative that Millennials are not prioritizing material success or ownership as much as other generations, but younger consumers are flexible as they seek to buy a home.
What prevents first-time homebuyers from entering the mortgage market?
First-time homebuyers face real challenges, including a financial gap and a knowledge gap about how and what’s required to buy a home.
Our survey found that consumers had misconceptions about down payments, with three-fourths of consumers (75%) thinking they needed more than a 10% down payment. In fact, the percentage of first-time homebuyer originations with a combined loan-to-value ratio of equal to or more than 90% has gone up, from 42% in 2012 to 66% in 2018. Given that consumers ranked the size of the down payment as one of their biggest barriers, lenders have an opportunity to educate consumers about mainstream programs that allow 3% and 3.5% down payments.
- Need a down payment: 58%
- Need a more steady job: 39%
- Home prices are too high: 35%
- Credit score is too low: 34%
Many potential first-time homebuyers don’t seem to be aware of the wide variety of financing options available to them, and education is a critical part of the formula.
How can lenders help first-time homebuyers?
Only one-third of consumers said they plan to remain with their existing lender for a mortgage, and 40% of survey respondents said they plan to shop around. This suggests there’s a large opportunity for lenders to proactively identify consumers who are interested in becoming first-time homebuyers and then educate them about mortgage and down payment options. Consumers may find home ownership programs that are more flexible than they originally thought. In turn, lenders can gain new customers and capture more of the first-time homebuyer market.
To learn more about how to identify and target first-time homebuyers, fill out the form below or visit transunion.com/industry/mortgage.