First-time homebuyers using loans backed by private mortgage insurance soared in the fourth quarter on the growing popularity of Fannie Mae and Freddie Mac's 3% down payment options, according to Genworth's First-Time Homebuyer Market Report.
PMI carriers insured 157,000 loans for first-time homebuyers at the end of 2017, the best fourth quarter since 1994, due largely to more lenders and borrowers taking advantage of Fannie Mae and Freddie Mac's 97% loan-to-value mortgage programs.
The most popular mortgage product for first-time buyers remains the Federal Housing Administration program, which insured 167,000 loans in 4Q17. But FHA volume decreased 8% year-over-year, even though the total number of first-time buyers during the quarter increased 4% year-over-year. If this trend continues, Genworth projects PMI could soon overtake the FHA program in market share.
"First-time homebuyers continued driving the growing trend towards using lower down payment mortgages, recording the most quarterly loans of this type in 18 years," Tian Liu, chief economist at Genworth Mortgage Insurance, said in a press release.
"When considering that there are still 2.7 million first-time homebuyers sitting on the sidelines, we believe volume for low down payment mortgages and privately insured loans will remain on its upward trajectory," he continued.
In the fourth quarter, single-family homes purchased by first-time homebuyers increased 4% year-over-year to 505,000 homes. The segment accounted for 39% of all single-family homes sold and 55% of all purchase mortgages originated.
In 2017, first-time buyers bought 2.07 million new or existing homes, an increase of 129,000, or 7%, from 2016. The number of first-time buyers using PMI increased by 93,000 loans, or 18%, in 2017.
Over the past three years, the first-time homebuyer market has increased 40%, or 588,000 loans.