The housing market in 2023 was brutal. Mortgage approvals and home sales hit a 30-year low as mortgage rates soared and housing inventory dwindled. But according to new data from ICE Mortgage Technology, a record number of first-time homebuyers took out conventional loans last year despite the slowdown.
In all, just 4.3 million mortgages were originated in 2023, according to ICE’s March 2024 Mortgage Monitor Report.
Additionally, the existing-home sales, which account for most home sales, fell 19% in 2023 from the previous year to 4.09 million, according to the National Association of REALTORS®.
Andy Walden, ICE vice president of enterprise research strategy, explained that recent data on agency mortgage-backed security (MBS) issuance reveals that first-time homebuyers (FTHBs) took out 55% of all agency purchase mortgages last year. That’s the highest share in a decade.
“In fact, FTHB purchase loans accounted for an exceptionally high share of all issuance activity last year,” Walden said in a statement. “They made up 39% of all GSE securitizations in 2023—12 percentage points higher than any other vintage in the past decade.”
Additionally, first-time buyers comprised a high share (44%) of overall agency securities issuance, increasing loan performance risk for GSE investors. “Agency” mortgages refer to loans backed by Fannie Mae, Freddie Mac and Ginnie Mae. “GSE” loans refer to those backed by Fannie Mae and Freddie Mae, which are government-sponsored enterprises.
“Given record exposure to first-time homebuyer loans, it’ll be worth watching the performance of this cohort very closely moving forward, particularly for those invested in 2023 agency MBS,” Walden added.
New homebuyers tend to have higher front-end DTI ratios, accounting only for their monthly housing payments. However, their back-end DTIs, which include all monthly debts and housing payments, are comparable to repeat buyers who typically have lower housing payments but higher levels of non-housing debt, ICE found.
The average FTHB’s credit score is nine points lower than the average repeat buyer. Walden added that first-time homebuyers were up against record-high home prices, larger down payment amounts, rising interest rates and higher debt-to-income (DTI) ratios—all contributing to affordability pressures.
Meanwhile, first-time VA purchase borrowers had an average credit score of 709 in January, or 23 points below that of the average repeat buyer’s score of 732. On the other hand, FHA loan borrowers have similar average credit scores compared to first-time and repeat buyers.
Although 2024 will be heavy on the purchase side, ICE expects that rate-and-term refinances could rebound if mortgage rates move lower. ICE data showed that January mortgage rates averaged 6.6%, driving up rate-and-term refis to 24% of total refinance activity during the month. That’s the highest level in nearly two years.
“Demand is clearly there when rates cross certain thresholds and, if current rate forecasts hold true, we expect that demand to increase throughout the year,” Walden said. “Unfortunately, when it comes to retaining the business of refinancing homeowners, the industry has a lot of ground to make up. Servicers retained just one of every five such borrowers in Q4 2024, a 17-year low.”
