As mortgage lenders are coming to realize, it’s tough to generalize about the millennial generation, which, in turn, makes it challenging to market mortgage loans and promote homeownership to this group.
Recent research from CoreLogic shows that when it comes to their credit histories, there are some distinct differences between “younger” millennials – those born from 1990 to 1997 – and “older” millennials – those born from 1981 to 1989.
The primary differences are somewhat obvious: For example, older millennials have had more time in the workforce and thus generally have higher incomes. This higher income – combined with the fact that they have worked for more years – means they generally have more savings compared with younger millennials. Having higher income and some savings in place helps with debt-to-income.
CoreLogic’s research shows that younger millennial borrowers have an average DTI of about 37.5, while older millennials have an average DTI of about 36.7.
Another difference is that younger millennials generally have higher levels of student loan debt. This is because college tuition costs have been rising sharply since 1997: Although tuition costs were rising when the older millennials were entering college, they continued to rise even higher when younger millennials started entering around 2010, and continue to rise today. That means younger millennials are, on average, carrying much higher college debt.
Another factor – although this is not mentioned in CoreLogic’s research – is that the recession that began in 2008 wiped out many parents’ ability to offset the sharp rise in their children’s college tuition costs and, as a result, a greater percentage of the younger millennials have had to absorb the full cost of college.
The fact that older millennials have had more time to establish their credit histories also gives them an advantage over younger millennials, particularly in terms of credit score.
In a recent post on the CoreLogic Insights blog, Archana Pradhan, economist for CoreLogic, concludes that “older millennials are closer to Generation Xers than to younger millennials in terms of mortgage credit attributes.”
However, she adds that “although younger millennials’ credit-risk attributes may look weaker today than for older cohorts, they have the potential for faster earnings growth and more savings accumulation, which are important offsets in their risk profile.”