

In Might 2022, Sam Khater—chief economist for Freddie Mac—argued {that a} surge in first-time consumers had been an necessary driver of the housing market the earlier 12 months. In distinction, utilizing information from the New York Fed Client Credit score Panel, we discover that the share of residence purchases by first-time consumers fell in 2021. This means that different components have been necessary to the speedy enhance in home costs in 2021.
First-time purchaser (FTB) exercise impacts the web provide of owner-occupied properties in the marketplace, as an FTB purchases a house however just isn’t promoting a house—in distinction to a repeat-buyer, who each purchases and sells a house. The official definition of an FTB is a family that takes out a mortgage to buy a house and has not been a home-owner for the previous three years. This overstates the actual FTB share (on common by round 15 share factors since 2002) by together with earlier owners who had been renting for at the very least three years previous to their present residence buy. Nevertheless, the official definition of an FTB is suitable for inspecting renters transitioning to proudly owning and their impact on web housing provide.
We use New York Fed Client Credit score Panel (CCP) information to determine FTBs utilizing the official definition. The CCP is constructed from a nationally consultant random pattern of anonymized Equifax credit score report information masking 5 % of family credit score recordsdata. The information set allows customers to comply with a given family by way of time. For any family that’s acquiring a mortgage, we will decide whether or not the family has had a mortgage over the previous three years. Importantly, the CCP information don’t replicate all-cash purchases. We assume that FTBs all the time finance residence purchases with a mortgage.
There was a rise within the quantity of FTB mortgages between 2020 and 2021. As proven within the chart under, this enhance was pushed by FTBs taking out mortgages assured by the GSEs.
Rise in 2021 FTB Purchases Concentrated in GSE Mortgages


Extrapolating the 2021 GSE FTB exercise to the entire market would help Khater’s view of a big rise in total FTB exercise. In combination, although, the rise in FTB exercise in 2021 displays a pattern that started again in 2011. To higher gauge the impression of FTBs we normalize the variety of FTB mortgages by a measure of residence gross sales.
Our first measure of the FTB share makes use of properties bought with a mortgage because the denominator. The FTB share is the variety of mortgages taken out by FTBs every year divided by the entire variety of buy mortgages taken out that 12 months. The chart under exhibits the FTB share from 2002 by way of 2021.
FTB Share of Complete Buy Mortgages Over Time


The share of buy mortgages by FTBs utilizing the official definition has been comparatively flat since 2014. There was a slight lower on this share between 2020 and 2021 (from 61.4 % to 60.6 %). Given the conduct of this FTB share, it doesn’t appear doubtless that FTBs have been an necessary contributor to the speedy residence worth will increase noticed in 2021.
Nevertheless, the impression of FTBs on the web provide of housing in the marketplace and home costs shall be extra intently associated to the FTB share relative to complete residence purchases—not simply purchases financed utilizing a mortgage. To recalculate our FTB share to replicate complete purchases, we use information from Redfin on the fraction of residence purchases by “all-cash consumers.” We proceed our assumption that FTBs all the time finance their residence buy with a mortgage and add the idea that money consumers should not FTBs.
Knowledge reported by Redfin point out a 5-percentage level enhance in all-cash purchases between 2020 and 2021. In consequence, as proven within the chart under, the share of FTBs as a fraction of complete residence purchases declined from 45.9 % in 2020 to 42.4 % in 2021. This means that money consumers have been taking market share from FTBs.
First-Time Consumers and Money Consumers as a Fraction of All House Purchases


If we assume that the majority money consumers intend to hire out the property, then money consumers are like FTBs in that they usually buy a property, however don’t concurrently promote a property. This means that we additionally contemplate the share of FTBs and all-cash consumers as a share of all residence purchases.
Including purchases by FTBs and all-cash consumers, we see that their mixed share will increase between 2020 to 2021—from 71.2 % to 72.4 %. Nevertheless, the typical worth of this share over the previous ten years can be 72.4 %. This enhance, by itself, is unlikely to have had a significant impression on “months’ provide” (the variety of properties listed on the market divided by the typical residence gross sales monthly) or home costs.
First-time consumers differ from repeat consumers in that they demand a home however don’t provide a home. An increase within the FTB share, holding different issues fixed, will put downward strain on the months’ provide of properties in the marketplace and upward strain on home costs. Our evaluation exhibits that FTB purchases declined barely in 2021 as a share of complete mortgages, and declined extra considerably as a share of complete residence purchases. In distinction, the mixed shares of FTBs and all-cash consumers as a fraction of complete residence purchases elevated solely modestly. The speedy home worth appreciation seen in 2021 doubtless displays different components, comparable to a change within the desire for owner-occupied housing as a result of enhance in work-from-home preparations.


Donghoon Lee is an financial analysis advisor in Client Conduct Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
Joseph S. Tracy is a non-resident senior scholar on the American Enterprise Institute.
How you can cite this publish:
Donghoon Lee and Joseph S. Tracy, “First-Time Consumers Did Not Drive Robust Home Value Appreciation in 2021,” Federal Reserve Financial institution of New York Liberty Road Economics, Might 15, 2023, https://libertystreeteconomics.newyorkfed.org/2023/05/first-time-buyers-did-not-drive-strong-house-price-appreciation-in-2021/.
Disclaimer
The views expressed on this publish are these of the writer(s) and don’t essentially replicate the place of the Federal Reserve Financial institution of New York or the Federal Reserve System. Any errors or omissions are the duty of the writer(s).