First-time buyer mortgage risk index climbs again in August

AEI: Trend points to future instability

The riskiness of first-time buyer agency mortgages stood at 15.55% in August, part of a continuing trend, according to the American Enterprise Institute’s International Center on Housing Risk.

The risk index for first-time buyers was up 1.3 percentage points from August 2014. The Agency FBMRI is nearly 6 percentage points higher than the mortgage risk index for repeat homebuyers, and the gap has been widening.

First-time buyers accounted for 56.9% of primary owner-occupied home purchase mortgages with a government guarantee, up from 54.5% the prior August.

The Combined FBMSI (which measures the share of first-time buyers for both government-guaranteed and private-sector mortgages) stood at an estimated 51.4%, up from 49.3% the prior August

“The strong spring 2015 home buying season has been paced by outsized gains for first-time buyers,” says Center Co-Director Edward Pinto. “Unfortunately, these gains are fueled in part by liberalized credit standards, which is creating demand pressure and driving real home prices higher. This will lead to future instability.”  

The number of primary owner-occupied purchase mortgages going to first-time buyers in August totaled an estimated 156,000, up 20% from the 130,000 mortgages in August 2014

Nearly 54% of first-time buyer loans were high risk (MRI above 12%) in August, up from 48.5% a year earlier. 

Historically low mortgage rates, an improving labor market, and loose credit standards, combined with a 35-month-long seller’s market for existing homes, continue to drive up home prices faster than income. 

The First-Time Buyer Mortgage Share and Mortgage Risk Indexes are key housing market indicators 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. 

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