WASHINGTON — An improving economy, better job market and higher household income are helping the first-time homebuyer market make a comeback as new data shows more households are being created.

New-owner households created in the first quarter totaled 854,000, compared with 365,000 renter households — a sharp reversal from previous trends.

"It is the first time in a decade that the number of new-owner households exceeded the number of new-renter households," said Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute.

It's a big change from a decade earlier, when new owner households declined by 827,000 and the number of new renters increased by 1.45 million.

But Goodman cautioned at a recent press briefing that household formation numbers can be volatile. "We will have to see if this trend is sustained over the coming quarters," she said.

Other factors are also coming into play that may help boost the first-time homebuyer market. Builders are finally creating smaller, less expensive homes, while lenders are facing a decline in refinancings.

"With the recent increase in interest rates and the ending of the refi boom, it is widely expected that lenders will have some incentive to marginally loosen up the credit box to maintain volumes and stay profitable," said Urban Institute analyst Karan Kaul. So lenders have "more incentive to do more purchase volume than in the past."

Lynn Fisher, vice president for research and economics at the Mortgage Bankers Association, said "lenders definitely are focused on the purchase market right now."

"At the same time, the lack of inventory for sale is really thwarting the housing market from taking off," she said in an interview. "It feels like growth should be accelerating, but there are really a lot of supply-side constraints right now. Any increase in new homebuilding would be a really big help right now."

Smaller homes may also help, observers said. The median square footage of a single-family home completed in the first quarter was nearly 200 square feet smaller than in the prior quarter. The average of a new such home declined to 2,628 square feet, according to economists at the National Association of Home Builders.

Smaller homes could be more affordable, and therefore more attractive, to first-time homebuyers.

Home sizes normally increase as the economy is coming out of a recession, helping repeat and higher-end buyers, said Robert Dietz, the homebuilder group's chief economist. It took longer than expected for first-timers to begin entering the market after the financial crisis.

"This pattern was exacerbated during the current business cycle due to market weakness among first-time buyers," Dietz said in a May 17 report. "But the recent declines in size indicate this part of the cycle has ended and size will trend lower as builders add more entry-level homes into inventory."

So far, MBA loan application data presents a "mixed bag" on first-time homebuyers entering the market, according to Fisher.

"On one hand, our weekly application survey shows average purchase loan size near record highs, indicating that larger loans are still dominating the market," Fisher said in a statement Tuesday.

On the other hand, an MBA survey of new home purchase applications is "showing growth among loan sizes and types favored by first-time buyers," she added.

In March, loan applications for newly built homes in the $200,000 to $300,000 range were up nearly 25% from a year ago. It represents the greatest year-over-year growth in mortgage applications since MBA launched its Builder Applications Survey in 2012.

"It shows that homebuilders are starting to build more modest starter homes," Fisher said.

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