Good read on first time home buyers creeping back into the real estate market and how government regulations are welcoming them back- enjoy.

Houseing Turning Point Seen in U.S. First-Time Buyers

Bloomberg

Clea Benson

As a deep freeze grips parts of America in a typically slow season for housing, first-time buyers are flocking to Redfin Corp.’s property tours and classes, signaling their renewed interest in the market.

“We are really hitting records in early-stage demand, in terms of people going on tours or even writing offers,” said Nela Richardson, the chief economist at Seattle-based Redfin, which has real estate offices in 26 states. “People are like, ok, this is the time to buy.”

Younger Americans who have been locked out of the housing recovery as lenders raised standards and wages stagnated are getting a boost this year. Federal regulators late last year adjusted mortgage rules to reduce risks for lenders and cut premiums and down payments for lower-income borrowers. The slowdown of home purchases by investors has also created an opening for first-time buyers.

They “are stepping a toe in the water in 2015,” said Richardson. “There are fewer cash buyers, fewer investors, and that gives people who actually need financing some breathing room.”

New homebuyers who can only afford small down payments didn’t significantly increase their presence in the market last year. Borrowers who made down payments of 5 percent or less on home purchases made up 39 percent of the market in the fourth quarter, up from 37 percent a year earlier and down from 41 percent at the end of 2012, according to data released Wednesday by research firm RealtyTrac.

Down Payments

Borrowers put down an average of 15.2 percent of the sales price in the last quarter of 2014, a small decrease from the post-housing crisis peak of 16 percent in the third quarter of 2013, according to RealtyTrac, which takes its data from deed filings in 900 counties where 89 percent of the U.S. population lives.

“I think it proves the point that the policymakers are trying to address, that first-time homebuyers have not been a big part of the recovery,” said Daren Blomquist, vice president at RealtyTrac in Irvine, California.

Government-controlled Fannie Mae and Freddie Mac as well as the Federal Housing Administration have taken steps to ease first-time buyers into the market. Fannie Mae, which buys mortgages and packages them into securities, began purchasing loans with down payments as low as 3 percent in December, a drop from its previous floor of 5 percent for most loans. Freddie Mac is preparing a similar reduction beginning in March.

Lower Premiums

FHA, a government mortgage insurer that serves borrowers who don’t have a lot of savings and backs loans with down payments as low as 3.5 percent, cut annual premiums last month by 37 percent. Borrowers now pay .85 percent of the mortgage balance in fees each year, a reduction the agency said would bring 250,000 new first-time buyers into the market.

Julian Castro, secretary of the Department of Housing and Urban Development, said the change was intended to “make homeownership more affordable for working families.”

Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute in Washington, said she’s examining how the actions by different agencies interact. Some borrowers with high credit scores who would have gotten Fannie Mae loans may now find that it’s cheaper to borrow through the FHA, she said. Goodman says the overlapping policies may not greatly expand the total number of borrowers.

Fannie Mae, Freddie Mac and the FHA also made changes last year to the way they handle mortgages with underwriting flaws to give banks more certainty that they won’t have to absorb the cost of soured loans that they originated with due diligence. The average FICO credit score on purchase loans backed by Fannie Mae or Freddie Mac was 754 in November compared with 759 in 2013, according to mortgage-technology company Ellie Mae.

Credit Availability

“Overall, there’s been a very, very, very small uptick in credit availability,” Goodman said. “We can’t tell whether it’s noise or not.”

First-time buyers have less competition from institutional investors, whose purchases dropped to a four-year low in the third quarter of last year, making up 4.3 percent of all residential sales, down from 5.3 percent a year earlier, according to data from RealtyTrac.

The share of first-time homebuyers last year dropped to its lowest level in three decades, according to an annual survey released in November by the National Association of Realtors. It fell to 33 percent from 38 percent a year earlier.

Redfin’s boost in tour and class attendance is a sign of renewed interest in the market from these Americans. Redfin, with offices in all regions of the U.S., said its home-buying class registrations for first-time borrowers jumped 31 percent in the first few weeks of January compared with the prior year. The number of customers requesting home tours increased 45 percent from last year.

“Whether that demand translates into actual sales is something I’m still watching,” Redfin’s Richardson said.