On top of rapidly-shifting rates, housing inventory still poses a threat to aspiring homebuyers. Newman said that the biggest challenge for his Gen Z and millennial customers is the housing shortage itself. “It takes them longer to find the perfect home, so that again is prolonging the homebuying process and giving them more time to have the market change on them,” Newman said. “A lot of the time, pre-approvals need to be lowered as rates shift, which impacts buyers’ budgets, and in turn, they get discouraged.”
SORRY THEY BOUGHT
Newman isn’t the only broker who has seen the struggles of young buyers firsthand. Deir Andrade, owner of Da Loan Lady brokerage, described her clients’ feelings and attitudes as being nearly identical to Newman’s clients. “One-half of my Gen Z clients are wanting to buy, and the other half is sorry that they did,” Andrade said. Andrade said that her clients aren’t sitting still in the market and, simultaneously, the market is moving too fast for them. While home prices are reportedly down according to the FHFA, high interest rates are creating a pressure cooker environment and the market hasn’t quite leveled out.
“Gen Z wants out of this market,” Andrade said, noting that most other younger clients who have student debt are struggling to compete in the volatile market.”These [younger buyers] have a lack of understanding about mortgage rates and managing their debt.”
Samir Dedhia, CEO of LemonBrew, said that he sees the same pattern of “uneducatedness” amongst young buyers. Aside from this observation, Dedhia also remarked that he sees a trend of psychological factors dissuading young buyers from entering the market. “There’s an overall lack of knowledge and education about mortgages and the process,” Dedhia said. “Media coverage [on mortgage rates] psychs them out, and they’re constantly being offered different advice.”
Dedhia noted that Gen Zers and millennials seeking advice on how to navigate the market is often fruitless, as many young buyers are asking their parents–who bought decades ago–for advice. “It was a different market for their parents,” Dedhia said. “Yet, these younger buyers have zero experience and are relying on their parents who bought 20-30 years ago.”
Dedhia said that those who actually have had initial success in submitting a housing contract are backing out due to a plethora of reasons, including inspection issues, rapidly shifting rates and job insecurity.
SEEKING ADVICE
These insecure buying issues can be avoided. In fact, all three mortgage professionals recommended Gen Z and millennial buyers approach seasoned professionals for buying advice. “I think educating [buyers] upfront and letting them know we have to have more communication between the buyers and the mortgage broker or loan originator,” Newman said. Andrade offered similar advice, and said “They think they know it all, but they need to stop and listen to experienced professionals and brokers.”
Dedhia emphasized that communication issues have long posed a barrier between prospective homebuyers and professionals. “Part of a loan officer’s job should be sitting down with their clients and educating them,” he said. “Understanding their goals and helping them understand what their payments will look like are also key. Let them know other options, such as refinancing, are available, too.”
For young buyers especially, Dedhia recommends keeping at least one year’s worth of savings in reserves. He also encourages buyers to sit down and map out their expenses month to month.
HUNKERING DOWN FOR A RECESSION
As Dedhia puts it, there’s no shortage of doom and gloom in the industry. “This doesn’t necessarily mean that now is a bad time for these younger generations to keep submitting contracts,” Dedhia said. “A recession may just mean companies are dialing back on their expenses. Right now, we’re in a buyers’ market.”
Newman agreed that now may be a good time for buyers to find relief. “I think that a recession might make it easier for [buyers] because it could mean that rates come back down and hopefully,” he said. “I think there’s a lag effect, but usually when rates go up prices will come down.” However, Newman also warned that credit lending may tighten as a recession looms. “We could get these adverse market changes where the lenders basically tighten up their guidelines, and that could make it harder [to buy],” Newman said. “We saw that this spring and I think that impact – and will continue to impact – some of these generations that are buying.
The above item was originally published at SCORE.org.