May 24 (Reuters) - Americans who had never previously owned a home bought 411,000 single-family homes in the first quarter, down 2 percent from a year ago, marking the first time this group purchased fewer homes on a year-on-year basis since 2014, a private report showed.
The purchase slowdown in the first quarter followed an unsustainable binge from first-time buyers over the past three years and a shortage of supply, especially of lower-priced homes, according to a report from Genworth Mortgage Insurance released on Thursday.
First-time buyers still play a crucial role in fueling housing demand, making up 40 percent of overall single-family home sales even in the face of rising mortgage rates and home appreciation, the company’s chief economist Tian Liu said in the report.
“In the housing market, first-time homebuyer demand is the most important driver behind the current seller’s market, characterized by low inventory and faster home price growth,” Liu wrote. “Millennial demand and the gradual release of pent-up demand explain this market condition.”
In 2017, 2.06 million homes were bought by first-time buyers, up 6 percent from the previous year and marking their strongest year since 2006, Liu said.
By comparison, 3.4 million single-family homes were sold to repeat buyers last year, unchanged from 2016.
However, there are 2.7 million potential first-time buyers who have stayed on the sidelines since the housing bust 11 years ago, according to Liu.
The home ownership rate among families headed by people who are younger than 35 was 35.3 percent in the first quarter, up 1 percentage point from a year earlier but still below its historical average of 39 percent.
Overall home ownership grew 0.6 percentage point to 64.2 percent in the first quarter.
“We believe that the housing market is becoming overheated, which is supported by this quarter’s growth of all-cash transactions and purchase loans made by investors, and the corresponding decrease in first-time homebuyers,” Liu cautioned.
Housing supply remains constrained due to a shortage of land and labor, lifting home prices at a 6 percent to 7 percent annual clip, analysts said.
As builders play catch-up to demand, Liu said some landlords may convert rental properties for sale to profit from rising prices, while some homeowners may opt to spend more on renovating current properties. That could provide some relief to the tight housing supply.
Reporting by Richard Leong, Editing by Rosalba O'Brien