3 million first-time homebuyers have been shut out of the market

Virtual reality is the new open house
Virtual reality is the new open house

The housing crash left a gaping hole in the real estate market.

In the past 10 years, three million would-be first-time buyers have been shut out of buying a home.

There were an average of 1.5 million first-time homebuyers a year in the last decade, according to a new report from Genworth Mortgage Insurance. That's far less than the historical average of 1.8 million a year.

First-time homebuyers play a major role in the housing market, and their absence has been a drag on the entire economy.

"The recovery would have been much stronger with those buyers," said Tian Liu, chief economist at Genworth Mortgage Insurance.

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First time buyers help keep the housing market flowing. They purchase entry-level homes, which allows current homeowners to trade up to a bigger home.

"Compared to repeat homebuyers, first-time buyers play a more pivotal role in influencing housing inventory and home prices because they represent the shift of housing demand from rental to owner occupancy," the report said.

The report defined a first-time buyer as a person who hasn't owned a home in the past three years.

The supply of available homes for sale has been tight in markets across the country, pushing home prices higher.

During the housing boom years leading up to 2007, the homeownership rate in the U.S. soared. But that all came to a screeching halt in the years following the Great Recession. In April, the rate stood at 63.6%, according to the government.

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But it looks like first-timers are coming back to the market.

From 2014-2016, first-time buyers accounted for 85% of the housing market's expansion, according to the report. In 2016, there were two million first-time buyers, a 15% increase from the year before.

"The unemployment rate has come down very significantly over the last two years and you have a very large base of renters who are potential first-time home buyers," said Liu.

Liu expects more renters to shift to homeownership in the coming years

"The homeownership rate will stage a recovery over the next few years," said Liu. "I think we will see a revert to a historic mean of around two-thirds of American families owning their homes. I think that is very exciting time "

The continued addition of new buyers could also bring a shift in the home construction industry. In the years following the economic crash, builders focused more on multi-family and luxury homes.

"Builders are beginning to realize the growth potential in the first-time homebuyer market as the higher-end housing market begins to become saturated," Liu said.

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