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The Millennial Mortgage Mess

We knew that they would be different. So now what?

Rob Chrisman
Rob Chrisman
A young millennial man and woman are painting their newly bought home.
Affordability remains the biggest hurdle to prospective millennial home buyers.

In the past we never named generations. That changed when former People Magazine editor Landon Jones named the “Baby Boom Generation,” and now the pattern has stuck. Millennials, categorized by the Census Bureau as having been born between 1982 and 2000, are now the nation’s largest generation, numbering 83 million and representing more than one quarter of the nation's population. Their size exceeds that of the 75 million Baby Boomers. After years of depressed homeownership rates for the generation, it seems they finally want a place to own. What are lenders doing about it?

Millennials have prided themselves on renting to stay nimble and keep work opportunities open, but the last 14 months during the pandemic have showed lenders that they’re ready to buy. Millennials have been steadily making up a slightly larger share of the nation’s home purchases each year. The figure rose from 34 percent in 2017 to 38 percent in 2020. First-time home purchases have exhibited similar growth, from 31 percent to 33 percent over the last three years.

Math Problem

Despite the millennial homeownership rate increasing faster than that of other generations over the past half-decade, at age 30, fewer millennials own homes (42 percent), versus 48 percent of Gen Xers and 51 percent of boomers when they were the same age. The 2020 millennial homeownership rate stood at 48 percent, according to the most recent data from the Census Bureau. For people aged 40 to 55 in 2020 (Gen X), the homeownership rate is 69 percent. Baby Boomers have the nation’s highest homeownership rate at nearly 79 percent.

Affordability remains the biggest hurdle to prospective millennial home buyers. It’s not that all of them don’t want to own a home, it’s that they can’t, mostly due to the cost of a down payment. 40 percent of millennials say the COVID-19 pandemic has had a direct effect on their homeownership plans, due to partial or total income loss, a reduction of down payment savings, or the feeling that homeownership is no longer a smart decision in a volatile economy.
Lenders should take note. In 2020, more than 18 percent of millennial renters said they planned to rent forever, up from 12 percent in 2019 and 11 percent in 2018, with most saying they simply cannot afford homeownership. (“Forever” is a long time.) Other reasons for renting included added flexibility, avoiding unforeseen maintenance and expenses and the feeling that buying a home is financially riskier than renting one. Homeownership has always been a vehicle for wealth creation in America but as the wealth gap widens between homeowners and renters, some millennials feel they have missed the boat all together.

As this current generation of home buyers has aged, they have seen that lenders are not evil as informal opinion believed ten years ago. In fact, the vast majority of lenders are very helpful. This wave of new buyers will have the opportunity to build and pass on wealth, and shape the market for years to come, many by using a reputable lender to help finance a home. This is in contrast to the financial crisis of 2008, many people bought homes they couldn't afford, allowing investors and developers to absorb foreclosures and distressed sales.

Trading Up

First-time millennial buyers are indeed buying homes with the knowledge their first home may not be their dream home. Millennials are more open to multi-family options like condos and quadraplexes, converted commercial buildings, or accessory dwelling units so they can start building wealth despite today's low inventory of single-family homes. In fact, with the oldest millennials turning 40 soon, they want more space for their growing families. Lenders and real estate agents are reminding them that they can build equity, have more space, take advantage of relatively low mortgage rates, and put their savings to work buying a roof over their head. 

Lenders know that a 75-year-old mortgage loan originator, while experienced, may not be in the best position to attract a 25-year-old client. A survey showed that 43 percent of first-time millennial homebuyers have been looking for more than a year, 44 percent say they still need more money for a down payment and other closing costs, and 34 percent say they can't find a house in their budget. This age group appears to be leaving larger cities like the New York metro area and heading west or south. If they can work from anywhere, why not do it from a place that doesn’t have state income tax like Texas, Florida, or Nevada? (Washington, Wyoming, Alaska, South Dakota round out the states without income tax.)

Real estate agents will tell you that most millennials want a house with good internet, a nice backyard in a desirable, quiet location, a garage, updated kitchens and bathrooms, good schools, and attractions and restaurants nearby. Is this really any different than any other generation?

Successful originators watch the demographics of their clientele. Are they open to referral-based marketing? How do they like to be communicated with, whether it is email, phone, U.S. postal service, or text? Does their parent company offer the products that cater to their home buying needs, at a competitive price? And do they have the patience to explain the lending process to younger clientele, and how servicing works? There are millions in this age group that will need financing, and someone has to do it!

This article was originally published in the Mortgage Banker Magazine June 2021 issue.
Rob Chrisman
Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 35 years ago. He is on the board of directors of Inheritance Funding Corporation, of Doorway Home Loans, of AXIS Appraisal Management, and of the California MBA. He is also a member of the Secure Settlements Advisory Board, an associate of the STRATMOR Group, and of the Mortgage Bankers Association of the Carolinas and its membership committee.

Published on
May 31, 2021
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