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By Matthew Woodhouse, Managing Director, Valuations, at ServiceLink
The generational shift in homebuying continues to gain momentum as millennials account for 37% of home purchases, according to the 2021 Home Buyers and Sellers Generational Trends Report by the National Association of Realtors. This generation has held the top spot among homebuyers since NAR’s 2014 report and will likely do so for years to come, as millennials continue to move forward in their careers, reach or approach their peak earning years and pay off their student debt.
The NAR survey also shows an upward trend in the number of older millennials purchasing more expensive homes. Essentially half (49%) of 30- to 39-year-olds reported purchasing a home priced at $300,000 or higher; that figure represents a 4% rise from the previous year and puts older millennials on par with Gen X homebuyers and ahead of baby boomers.
Lenders across the industry recognize the great potential of these younger homebuyers; those that stand to win them over also understand that their approach must evolve to meet new expectations. This tech-savvy crop of (mostly) first-time homebuyers has their own ideas about how the home purchase process should play out and what kind of support they need along the way. Their expectations were lifted even higher as the pandemic increased consumers’ reliance on technology and influenced what they look for in a homebuying experience.
The following insights help explain what younger homebuyers expect, and how lenders and servicers can fulfill their needs.
What Sets Younger Homebuyers Apart
Millennials (25- to 40-year-olds) and the younger generation that’s hot on their heels, Gen Z (18- to 24-year-olds), exhibit characteristics and tendencies that differentiate them from older homebuyers: Gen X (ages 41-56) and baby boomers (ages 57-75). Among these are their strong tendency to conduct research and shop for homes online, their desire to leverage online lenders and their willingness to buy a home at auction.
Researching before buying. The ServiceLink 2021 State of Homebuying Report asked 1,000 homeowners in April 2021 whether they felt they knew what to expect when starting the homebuying process. Millennials and Gen Z respondents exuded the most confidence, with 56% stating they felt fully prepared; this compares with 45% of Gen X and 46% of baby boomers.
While this response may at first seem counterintuitive — after all, these are the youngest homebuyers and the most likely to be first-time buyers — it makes perfect sense when you consider how adept younger consumers are in leveraging online resources. The ServiceLink report revealed that these buyers are more likely than older generations to research online, reading articles, blogs and other online information at the start of their homebuying process.
In addition, they are also more likely than older generations to reach out to family, friends and real estate agents for information. They take homebuying seriously and do their homework to ensure they are prepared.
Embracing online tools and technology solutions, including self-serve solutions. Technology is second nature to younger consumers, so when it’s time to shop for a home or a lender, they naturally turn to the internet. In fact, this group is so digitally connected that Zillow found that nearly 40% of them — 39% of millennial and 36% of Gen Z consumers — would be comfortable buying a home entirely online. This compares with 19% of Gen Xers and 7% of boomer and Silent Generation consumers.
Whether they are open to purchasing a home in this nontraditional fashion or not, consumers of all ages are increasingly leveraging technology to at least some extent during the homebuying process, according to ServiceLink’s research. Unsurprisingly, millennials and Gen Z are the most likely to rely on it, with 89% saying they used technology at some point in their homebuying journey. This compares with 71% of Gen Xers and 33% of baby boomers.
Their online engagement begins, as mentioned above, in the research stage and continues throughout the shopping phase: Sixty-two percent of millennial and Gen Z homebuyers told ServiceLink they had researched property listings online (55% of Gen X and 25% of baby boomers reported that they had), and another 42% shared that they had taken advantage of virtual tour opportunities (compared with 35% of Gen X and 12% of boomers). By NAR’s count, 60% of millennials and 61% of Gen Z homebuyers found the home they ultimately purchased on the internet.
Further down the road, younger buyers are more apt than their older counterparts to embrace digital self-service tools for scheduling their appraisal, inspection and closing appointments, and they express the desire to be able to complete more milestones in their homebuying process online.
Being open to buying a home at auction. With the moratorium on foreclosures and evictions lifted, more homes will be going to auction in 2022. That’s welcome news for homebuyers who may have been thwarted or discouraged by the tight housing market. Those embracing this alternative homebuying opportunity most enthusiastically are millennials. A survey conducted by The Harris Poll on behalf of ServiceLink in October 2021 revealed that three-quarters (75%) of millennial consumers would consider buying a home at auction, compared with 65% of Gen Xers and 54% of baby boomers. In fact, 21% of millennials and 13% of Gen Z consumers said they had already bought a home at auction, versus just 6% of Gen Xers and 4% of baby boomers.
While remote (online) bidding would motivate 42% of consumers overall to buy a home at auction, it would motivate more than half — 55% — of millennials. They appreciate that remote bidding tools help minimize or eliminate the need for travel, saving them time, effort and potential frustration related to pandemic travel guidelines.
How Lenders Can Strengthen Their Appeal to Millennial Homebuyers in 2022
With so many years of homebuying potential ahead, millennial and Gen Z consumers are being aggressively pursued by originators across the country. How can forward-thinkers gain the edge?
Provide education and insights. Knowing that younger buyers strive to be as well-informed as possible as they prepare to buy a home, lenders should provide easily accessible, meaningful information. Consider these key statistics taken from the ServiceLink State of Homebuying study:
- 72% of survey respondents who used an online lender reported feeling “fully informed,” while only 58% of those who used a traditional lender did
- 65% of millennial/Gen Z homebuyers said they turn to family and friends for information, while only 22% rely on their lender for information
There’s a real opportunity for lenders that have not yet stepped up as a key information source for younger homebuyers to make this a priority in 2022.
Invest in technology updates, including self-service options. Millennial and Gen Z homebuyers crave the efficiency and empowerment well-designed automation solutions provide. These are individuals who were already leaning into mortgage technology before the pandemic struck. Of necessity amid lockdowns and social distancing requirements, they grew even more reliant on digital solutions. Lenders and servicers that do not provide digital solutions across the entire mortgage experience, from application through closing, may disappoint younger customers or miss out on them entirely.
Over recent years, nearly all lenders have adopted online application, but younger consumers are now looking for more. In fact, 39% of them told ServiceLink that a key aspect of the homebuying process they would change is being able to complete more milestones online. Think about all of the opportunities for speeding up the mortgage process to get borrowers to the closing table faster. Self-serve scheduling of the appraisal, inspection and closing, as well as e-signing capabilities (hybrid or full RON) are a good place to start.
As millennials’ influence over the housing market continues to grow, technology’s role will continue to increase. Anticipating, understanding and responding to their preferences will be key to earning their business and their trust not only in 2022 but for decades to come.
Matthew Woodhouse is managing director, valuations, at ServiceLink, a provider of digital mortgage services to the mortgage and finance industries.