Millennials are making up a larger share of the U.S. homeowner market, and it’s because they are buying homes, two recent reports show.
According to the latest estimates from the U.S. Census Bureau, the total homeownership rate increased to 64.8% in the fourth quarter. It was the eight consecutive quarter that the total homeownership rate increased on an annual basis.
But it was mostly homeowners under the age of 44 who drove this increase, the Census Bureau’s report shows.
As of the end of the fourth quarter, 36.5% of people under the age of 35 were homeowners, up from 36% in the fourth quarter of 2017.
Similarly, 61.1% of people age 35 to 44 were homeowners in the fourth quarter, up from 58.9% a year earlier.
What this means is that Millennials are making up a greater share of home sales.
Ralph B. McLaughlin, deputy chief economist and executive of research and insights for CoreLogic, says the increase in the homeownership rate among younger cohorts is “largely due to households under the age of 35 purchasing homes in specific regions of the country, such as the Midwest and Northeast.”
“American households, especially young households, are becoming confident enough in their financial and familial circumstances to take the plunge into homeownership, despite rocky outcrops of affordability and sparse inventory,” McLaughlin says in a post on the CoreLogic Insights blog. “This is good news for proponents of homeownership in the United States since young households represent the largest pool of potential homebuyers since their parents, the baby boomers, came of home buying age over three decades ago. The future of homeownership in this country indeed looks bright.”
McLaughlin says the increase is partly a result of strengthening household formation.
“The fourth quarter of 2018 was the fifth consecutive quarter that owner-occupied households grew by more than a million, at 1.7 million new owner households,” McLaughlin writes. “At the same time, the number of new renter households either fell six out of the past seven quarters with a decrease of 167,000 households.
“This suggests that the increase in the homeownership rates is at least partly due to households making a switch from renting to owning,” he adds. “What’s more, total household growth has topped 1 percent for five straight quarters, which is positive news for the housing industry at large. This streak represents the longest and largest magnitude of household growth in more than 12 years.”
CoreLogic’s data shows that Millennials are buying homes in more affordable markets – particularly in the Midwest and Northeast – more rapidly than they are in less affordable markets like coastal California and Florida.
Markets where millennials made up the largest share of purchase applicants in the fourth quarter included Pittsburgh, Penn. (57%), Provo, Utah (56%) and Rochester, N.Y. (55%).
Markets where they made up the lowest share of mortgage applicants included Sarasota, Fla. (24%), Cape Coral, Fla. (30%) and Ventura, Calif. (32%).
Ellie Mae’s most recent Millennial Tracker report shows that Millennials closed a higher share of purchase loans in December compared with a year earlier.
About 88% of all purchase loans closed in December were purchases by Millennials, the report shows. That’s an increase of 4% compared with December 2017.
For all loans closed by Millennials in December, 68% were conventional and 27% were FHA, according to the mortgage software firm.
The Millennial share of conventional purchase loans was 87%, up from 80% a year earlier.
“Many Millennials are prioritizing homeownership and rather than being deterred by a tight market, they’re increasingly competing for available homes or moving to areas where inventory is more robust,” says Joe Tyrell, executive vice president of corporate strategy for Ellie Mae, in a statement.
“The average age for a Millennial homebuyer in December was 29.5 years old, the lowest for any month in 2018,” Tyrell says. “This may be driven in part by younger borrowers who no longer feel the need to wait for a typical life event like marriage before buying a home.
“In fact, from 2016 to 2018, 63 percent of borrowers between the age of 20 and 29 were single when they closed their loans,” he adds.
According to Ellie Mae’s data, the average FICO score for Millennial borrowers on all closed loans in December was 721, down slightly from 722 in December 2017.
For all closed loans in December, 52% of Millennial borrowers were married, while 48% were single – flat compared with December 2017.