PERSON OF THE WEEK: Research and market trends show that millennials are now hot to buy homes – but mortgage lenders still have a lot to learn about how to do business with this generation of home buyers.
Considering that millennials are the largest generation in terms of population, and have generally been slow to become homeowners, it’s easy to understand why this cohort represents such a huge opportunity for lenders: Currently, only about 45% of millennials are homeowners.
So what can mortgage lenders to to improve their ability to attract and retain millennial borrowers? To find out, MortgageOrb recently interviewed Kyle LeDuc, senior mortgage advisor and Ohio branch manager for Homespire Mortgage.
Q: What are some of the key issues and concerns that are particularly relevant for today’s millennial homebuyers?
LeDuc: While the pandemic has had a huge impact on everyone, for many millennial homebuyers, it also stirred up a lot of memories. Most of this demographic experienced the Great Recession in 2008, and because of this, many tend to be a bit more fiscally restrained or even hesitant when it comes to purchasing a home.
Employment concerns related to Covid’s ongoing effects have also added to these worries. For some millennials, these concerns became a setback to their home-buying goals.
Still others never believed it was even possible to buy a house. They’ve waited to feel they were in a positive financial position for a loan, for the right house in the right location, and all these outside extraneous variables over which they have no control have drawn out the wait even further. The idea is that when things subsided, they’d be ready and eager to get active in the housing market again.
Yet, for all these obstacles and concerns, more and more of today’s millennials are choosing not to wait, diving into the home-buying market.
And the numbers seem to back this up. We’ve seen a significant jump in millennial home buyers, with this group comprising of 37% of home buyers and 53% of new mortgages in 2020, according to a recent report from the National Association of Realtors.
Personally, the majority of pre-approvals and home financing contracts I’ve seen come through for purchases recently are for millennial home buyers. Unsurprisingly, as the largest population demographic currently, there are a lot of them in the market for a home (and if it weren’t for the pandemic, the number would definitely be higher). For those still choosing to wait, many are using this time for rebuilding and or resetting the clock.
Q: What are some trends that you are seeing among millennial home buyers in today’s market?
LeDuc: For millennials, in particular, they seem to be choosing to skip the “starter home” step that previous generations took. I find that, more and more, when I have that initial conversation with home buyers about how long they plan to be in their first house, I am hearing five to 10 years minimum. In my opinion, five to 10 years does not reflect a “starter home” mentality. So I find that millennials are already thinking in terms of purchasing a home that has the space for them to grow into over time. And that’s understandable with what many have seen happen in recent years, from the Great Recession to the pandemic, they tend to be a bit more risk averse as a group and focused on planning for the future.
That move of skipping the starter home and thinking longer term is also directing many of the millennial home buyers I work with towards the suburbs, not the city. Suburban homes provide more options in terms of amenities and convenience features and the ability to be a part of a smaller, tight-knit community, which is appealing. Additionally, suburban homes are often newer – and often equipped with more eco-friendly devices and smart app technology that appeals to millennials.
Q: Are there any credit decisioning factors that come into play with this demographic?
LeDuc: It’s well documented, but the elephant in the room continues to be millennials’ outsized student debt load compared to prior generations. As a result, many potential home buyers have reservations about even considering homeownership simply because they “don’t know what they don’t know.” We see it reflected in the homeownership rates: 42% of millennials were homeowners at age 30, whereas Generation X was 48% and Baby Boomers were over 51% at the same age.
Many millennials assume that if they have, say, $80,000 in student loan debt, there’s no way they could possibly get a mortgage. The reality is that if they work with a professional who is savvy and knows the intricacies of the loan guidelines and rules, they will find they actually can qualify despite their student loan debt.
A loan application today is more about viability and feasibility versus assets and debts, so it’s become more about looking at income that is stable and predictable and making sure it can cover everything for future payments as well as their current debt.
Q: Any additional insights on connecting with millennial home buyers?
LeDuc: We have been talking about this group for so long, yet many still think of the millennial home buyer as a young, 20-something that is obsessed with technology. That’s not the case at all. Many millennials are in now their mid-to-late 30s, are responsible parents, and have stable, successful careers.
Q: Is it important to have good technology in place, through modern apps that enable a convenient, delightful borrower experience?
LeDuc: Absolutely it is. But it is even more important to pair that with meaningful human interaction and expertise that provides strategic counsel and practical information to help guide millennials through the home-buying process.