First-time Homebuyers in Rural and Urban Pennsylvania

First-time Homebuyers in Rural and Urban Pennsylvania September 2015 This fact sheet presents an analysis of first-time homebuyers in Pennsylvania. According to 2013 data from the Federal Housing Finance Agency (FHFA), there were 2,699 rural first-time homebuyers and 17,904 urban first-time homebuyers in Pennsylvania. FHFA defines a first-time homebuyer as someone who intends to live in the purchased home and who has not owned a home in the past 3 years. Methods This analysis used 2013 data from FHFA. FHFA provides public use data on the number of mortgages that are acquired each year by Fannie Mae and Freddie Mac. Information gathered from mortgage applications includes the age, gender, race, income and amount borrowed or Unpaid Principal Balance of the applicant. The data also include the purpose of the mortgage, such as home purchases, refinancing, or investment, and whether the borrower is a first-time homebuyer. The FHFA data are reported at the Census tract level. A tract is defined as an area having a population between 1,200 and 8,000, and having boundaries that generally follow visible and identifiable features. In Pennsylvania, the boundaries of Census tracts may include multiple municipalities or part of a municipality. In 2010, there were 3,218 Census tracts in Pennsylvania, 23 percent of which were classified as rural and 77 percent as urban. A rural Census tract is defined as a tract whose population density is below the statewide average of 284 persons per square mile; an urban tract has a population density at or above the statewide average. In the FHFA database, nine mortgages had incomplete Census tract codes. For this analysis, these nine mortgages were coded as rural or urban, based on the county in which they were located and using the same population density model described above. In this analysis, the Center for Rural Pennsylvania focused solely on first-time homebuyers. If more than one person was listed on the mortgage, the Center used the information of the first person listed. FHFA defines a first-time homebuyer as someone who intends to live in the purchased home and who has not owned a home in the past 3 years. FHFA records the amount of money borrowed to purchase the home. This amount is called the acquisition of Unpaid Principal Balance (UPB). It is not the same as the selling price of the home since it excludes any down payments and closing costs. One limitation of the data, however, is the lack of information on first-time homebuyer debt, interest rates paid, and mortgage duration. According to the federal Consumer Financial Protection Bureau (CFPB), the debt-to-income ratio is one way lenders measure a person s ability to manage the payment on the money borrowed. The CFPB states that evidence from studies of mortgage loans suggests that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments. Since the FHFA data do not include all first-time homebuyer debt (credit cards, auto loans, student loans, etc.), the interest rate, or the duration of the mortgage, the Center could not accurately calculate the debt- Homebuyers in Rural and Urban Pennsylvania, 2013

First-time Homebuyers by Census Tract, 2013 to-income ratio. Despite this limitation, the analysis estimated some of the debt incurred by first-time homebuyers by dividing the UPB by income. When dividing the UPB by income, it is not unusual for the mortgage to be double or even triple the homeowner s income. These seemingly high ratios are most useful when comparing geographic areas and the characteristics of first-time homebuyers. Note that for both UPB and income, FHFA rounds the values to the nearest $1,000. Also, Census tracts from prior years may not completely match the 2013 tracts. Data from the 2009-13 American Community Survey were merged into the FHFA dataset to identity the characteristics of Census tracts with first-time homebuyers. For all graphs and tables, the data source is the Federal Housing Finance Agency, Enterprise Public Use Database, Single-Family Properties, Census Tract File, unless noted otherwise. First-time Homebuyers per 100,000 Population by State, 2013 2 The Center for Rural Pennsylvania

Findings In 2013, there were 46,978 homebuyers in Pennsylvania. Of these homebuyers, 20,603 (44 percent) were first-time homebuyers and 26,375 (56 percent) were not first-time homebuyers. Among first-time homebuyers, 2,699 (13 percent) purchased a home in a rural Census tract and 17,904 (87 percent) purchased a home in an urban Census tract. Age of Rural and Urban First-time Homebuyers, 2013 Location of First-time Homebuyers About 15 percent of Pennsylvania s 3,218 Census tracts had no first-time homebuyers; 38 percent had one to four first-time homebuyers, 23 percent had five to nine first-time homebuyers, and 24 percent had 10 or more first-time homebuyers. Aggregating the number of first-time homebuyers to the county level indicated that Allegheny County and the five southeast counties of Philadelphia, Bucks, Chester, Delaware and Montgomery had the most first-time homebuyers statewide. Each of these counties had more than 1,100 first-time homebuyers. The rural counties of Cameron, Forest, Fulton, Potter and Sullivan had the least first-time homebuyers, each with fewer than five. Per capita, rural Census tracts had 90.7 first-time homebuyers per 100,000 residents and urban Census tracts had 184.1 per 100,000 residents. Nationwide, there were 510,541 first-time homebuyers in 2013, or 161 per 100,000 residents. The three states with the highest number of first-time homebuyers per capita were Colorado, Massachusetts, and Washington, each with more than 251 first-time homebuyers per 100,000 residents. The three states with the lowest number of first-time homebuyers were Maine, West Virginia, and Mississippi, each with fewer than 75 per 100,000. Pennsylvania had the nation s 22 rd highest number of first-time homebuyers, with 161 per 100,000 residents. Gender, Race and Age The majority of rural and urban first-time homebuyers (55 percent and 60 percent, respectively) had only one borrower identified. Among rural homebuyers, 71 percent were male, 26 percent were female and 3 percent did not provide the information. Among urban first-time homebuyers, 65 percent were male, 32 percent were female and 3 percent did not report. The majority of rural first-time homebuyers (93 percent) identified themselves as white, 2 percent as non-white, and 4 percent did not provide information. Among urban homebuyers, 83 percent identified themselves as white, 10 percent as non-white, and 7 percent did not provide information. There was no significant difference in the average age of rural first-time homebuyer (34.3 years old) and urban first-timers (34.6). Amount Borrowed In 2013, the median UPB for rural first-time homebuyers was $135,000 and for urban first-time homebuyers $172,000. Nationwide, the median UPB among first-time homebuyers was $189,000, or $23,000 higher than Pennsylvania s statewide median of $166,000. In Pennsylvania, among rural first-time homebuy- Amount Borrowed (UPB) by First-time Rural and Urban Homebuyers, 2013 First-time Homebuyers in Rural and Urban Pennsylvania 3

First-time Rural and Urban Homebuyers, by Amount Borrowed (UPB), 2013 females. There was a slight, but significant, difference in the ratio among age groups, where younger first-time homebuyers had a higher ratio than older first-time buyers. Among urban first-time homebuyers, there were significant differences between the genders and races as well as age cohorts. Nationwide, the debt-to-income ratio was 253 percent. Pennsylvania s statewide ratio was 225 percent, the 31 st highest in the nation. The two states with the highest ratios were Hawaii (378 percent) and California (313 percent). The states with the lowest ratios were Ohio (199 percent) and West Virginia (190 percent). ers, females borrowed less money than males. In addition, whites borrowed less than non-whites, and middle-aged borrowers (30 to 49 years old) borrowed more than younger and older first-time homebuyers. This pattern was the same for urban first-time homebuyers. Income The median income of rural first-time homebuyers was $61,000 and for urban first-timers $69,000. Nationwide, the median income of first-time homebuyers was $72,000, or $4,000 higher than the Pennsylvania median of $68,000. Debt-to-Income Ratios Among rural first-time homebuyers, the debt-to-income ratio was 221 percent. This means the first-time buyers were purchasing a home that was 2.21 times their income. Among urban first-time homebuyers the ratio was 249 percent, or 2.49 times their income. Among rural first-time homebuyers, there was no significant difference in the debt-to-income ratio when comparing whites to non-whites, and males to Income of First-time Rural and Urban Homebuyers, 2013 Census Tracts To better understand why some Census tracts had more first-time homebuyers than others, the Center examined Census tract attributes that seemed to attract first-time homebuyers, overall, and then rural versus urban tract characteristics and first-time homebuyers. For this portion of the analysis, the Center used data from the 2009-13 American Community Survey. To compare the number of rural and urban first-time homebuyers equally, the Center first divided the number of first-time homebuyers in each Census tract by the tract population and then multiplied by 1,000 to get the number of first-time homebuyers per 1,000 residents. Census tracts without first-time homebuyers were removed from the analysis. Census Tract Attributes for First-time Homebuyers Overall To measure attraction, the Center looked at the relationship (correlation) between first-time homebuyers and various socio-demographic and economic attributes. While a correlation does not indicate causality, it does measure the strength and direction of a relationship between two variables. A positive correlation suggests that the greater the number of first-time homebuyers, the greater the significance of the factor being measured. The opposite is true for negative correlation. 4 The Center for Rural Pennsylvania

Debt-to-Income Ratios for First-time Rural and Urban Homebuyers, 2013 According to the analysis, there is a relationship for first-time homebuyers and Census tracts with the following characteristics: Age Cohorts: First-time homebuyers are more prominent in tracts where the population is between the ages of 40 and 64. There are significantly fewer homebuyers in tracts were there are large percentages of residents under 18 years old and between 25 to 39 years old. There is a similar pattern for urban first-time homebuyers, except that the percent of population under 24 years old is negatively correlated and the percent of the population age 25 to 64 is positively correlated. For both rural and urban first-time homebuyers, there is no relationship between the Census tract and the percent of population that is 65 years old and older. Race: There is no relationship between the number of rural first-time homebuyers and the percent of the population that is non-white. For urban first-time homebuyers, there is a negative relationship with the percent of the population that is nonwhite. This suggests that the lower the percentage of non-whites, the greater the number of first-time homebuyers. Types of Households: Rural and urban first-time homebuyers are less likely to move into a Census tract with a high percentage of households with children. Rural buyers, however, are more likely to move into a tract with more single-person households, while urban buyers are more likely to move into tracts with more married couple households. Native Born/Foreign Born: There is no relationship between rural firsttime homebuyers and the percentage of persons born in other states or in Pennsylvania. There is, however, a positive relationship between the number of rural buyers and foreign born persons (the higher the percentage of foreign born, the higher the number of first-time buyers.) There is no relationship between urban first-time buyers and the percentage of foreign born population. There is a positive relationship with the percentage of persons born in other states and a negative relationship with the percentage born in Pennsylvania. Educational Attainment: Both rural and urban first-time homebuyers are more prominent in Census tracts where there are higher percentages of adults (age 25 years old and older) with a bachelor s degree or higher and where incomes are higher. Unemployment Rate: There is a negative relationship between rural and urban first-time buyers and unemployment; the higher the unemployment rate, the lower the number of first-time homebuyers. Housing Values: The number of rural and urban first-time homebuyers is positively correlated with housing values. This suggests that first-time homebuyers are moving into Census tracts with higher home values. Property Taxes: The number of rural and urban first-time homebuyers is positively correlated with property taxes; the higher the property taxes, the higher the number of first-time homebuyers. These taxes include municipal, county, and school district taxes. Age of Housing Units: Among rural first-time homebuyers, there is no significant relationship with the percent of homes built in 2000 or later. There is, however, a relationship for urban firsttime homebuyers. Types of Housing Units: The number of rural and urban first-time homebuyers is positively correlated with the percentage of homeowners who are living in a townhouse (single-family unit attached). The number of first homebuyers is negatively correlated with the percent of homeowners who are living in a single-family home (unattached) and mobile home. First-time Homebuyers in Rural and Urban Pennsylvania 5

Number of Rental Units: There is no significant relationship between rural first-time homebuyers and the percent of homes in the Census tract that are rental units. However, for urban first-time buyers, there is a significant negative relationship. Rural and Urban Census Tract Characteristics and First-time Homebuyers To determine if there are different characteristics in rural and urban Census tracts that appeal to first-time homebuyers, the Center divided all tracts into two groups: tracts where the per capita number of firsttime homebuyers is at or below the statewide rate; and tracts where the per capita number of first-time homebuyers is above the statewide rate. The statewide per capita rate was 1.61 first-time homebuyers per 1,000 population. The two groupings were necessary to identify any statistical differences in characteristics of rural and urban Census tracts while controlling for the scope of first-time homebuyers. Tracts that are above the statewide average in the number of first-time homebuyers are referred to as high, while tracts that are at or below the statewide average are referred to as low. Differences Between Rural Census Tracts: There are many differences between rural Census tracts with high and low rates of firsttime homebuyers. For example, tracts with a low rate of first-time homebuyers have lower population densities than tracts with high rates of first-time buyers. Tracts with low rates of first-time homebuyers have lower incomes and housing values, and fewer adults with a college degree or higher than tracts with high rates of first-time homebuyers. Tracts with low rates of first-time buyers have lower property taxes and fewer married couple households than tracts with high rates of first-time buyers. Some of the characteristics that are similar between rural tracts with high and low rates of first-time homebuyers include the percent of senior citizens (65+ year old), the unemployment rate, and the average commute time. Differences Between Urban Census Tracts: The only characteristics that urban Census tracts with high and low rates of first-time homebuyers share are the percent of households with children and single family housing units. Among all other indicators, there were significant differences. For example, tracts with low rates of first-time homebuyers have lower incomes and housing values, and fewer adults with a college degree or higher. Tracts with low rates of first-time homebuyers also have fewer married couple households, lower percentages of people who moved into their homes after 2000, higher percentages of non-white populations and higher unemployment rates. Correlation between First-time Homebuyers per Capita and Rural and Urban Census Tract Characteristics, 2013 Yes indicates a statistically significant correlation at the 0.01 level. The direction of the correlation (positive or negative) is in parentheses. Only Census tracts with first-time homebuyers were included in the analysis. 6 The Center for Rural Pennsylvania

There are differences in the Census tracts that attract first-time homebuyers. First, more affluent tracts (income and housing values) have higher rates of first-time homebuyers. This pattern is true for both rural and urban tracts. Second, tracts with higher property taxes have higher rates of first-time homebuyers. Again, this pattern is true for both rural and urban tracts. Third, Census tracts with higher percentages of new residents (moved into their home after 1999) and new homes (built after 1999) attract higher portions of first-time homebuyers than tracts with higher percentages of long-term residents and older homes. Finally, one difference that applies only to urban tracts is the rate of first-time homebuyers and the percentage of non-whites. Urban tracts with lower percentages of non-whites have a higher rate of first-time homebuyers. For rural tracts, there was no difference in the rate of first-time homebuyers and the percent of the non-white population. Differences/Similarities in the Number of First-time Homebuyers per Capita and Rural and Urban Census Tract Characteristics, 2013 +Statewide rate was 1.61 first-time homebuyers per 1,000 population. *Yes= a statistically significant difference at the 0.005 level, No= no significant difference. 1. Table presents the average income, housing values and property tax. In the analysis, the median values were used. 2. Data include owner-occupied units only. Data source: 2009-13 American Community Survey, U.S. Census Bureau. First-time Homebuyers in Rural and Urban Pennsylvania 7

First-time Homebuyers by County, 2013 The Center for Rural Pennsylvania Board of Directors Senator Gene Yaw Chairman Senator John Wozniak Vice Chairman Representative Garth Everett Treasurer Dr. Nancy Falvo Clarion University Secretary Representative Sid Michaels Kavulich Dr. Livingston Alexander University of Pittsburgh Dr. Theodore R. Alter Pennsylvania State University Stephen M. Brame Governor s Representative Taylor A. Doebler III Governor s Representative Dr. Stephan J. Goetz Northeast Regional Center for Rural Development Dr. Karen Whitney Clarion University Data sources: Federal Housing Finance Agency, Enterprise Public Use Database, Single-Family Properties, Census Tract File and 2013 Population Estimates, U.S. Census Bureau. The Center for Rural Pennsylvania 625 Forster St., Room 902 Harrisburg, PA 17120 Phone: (717) 787-9555 Fax: (717) 772-3587 www.rural.palegislature.us 1P0915 8 The Center for Rural Pennsylvania