This is How Important Government Financing is For First-Time Homebuyers

by Peter Thomas Ricci

Simply put, without government guarantees, the percentage of first-time homebuyers would be even smaller than it already is.

In June of this year, only 28 percent of existing-home sales went to first-time homebuyers, a historically low total that was consistent with not only May, but June of 2013 – and the remarkable thing is, without government assistance, that share would likely be even lower.

According to a remarkable series of numbers published this week from The Wall Street Journal, government-backed loans – whether from Fannie Mae, Freddie Mac or the FHA – have played an outsized role in the nation’s mortgage markets, with a large share of first-time homebuyers taking advantage of government guarantees after the financial crisis of 2008.

Why is that the case, you may wonder? Two things: first, the marketplace for privately-backed mortgages all but disintegrated after 2008, and the government was soon backing 90 percent of all new mortgages; and second, lending standards skyrocketed, and first-time buyers fled to government financing (especially from the FHA) to fund their home purchase.

Check out our graph below, for an idea on how lending has shifted:

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