Survey Reveals Young Prospective Homebuyers are Mostly Undeterred by Higher Mortgage Rates

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Despite higher mortgage rates and rising home prices, 63% of Gen Z’ers and 59% of millennials says they plan to purchase a home this year, according to a survey conducted by mortgage technology firm ServiceLink.

What’s more, 45% of Gen X’ers and 21% of baby boomers also say they plan to purchase a home in 2024.

The survey reveals that younger generations remain optimistic about the housing market – despite the prevailing headwinds – with 56% of Gen Z respondents and 51% of millennial respondents saying conditions for buying are favorable – compared to 38% of Gen X and 18% of baby boomers.

But can the youngest generation actually afford to buy? In the survey, 33% of Gen Z respondents reported earning less than $50,000 and 22% reported earning more than $100,000.

The largest overall demand comes from the renting community: 69% of renters and 70% of those living rent-free say they are planning to purchase. Only 34% of those who currently own a home plan to buy in 2024.

Now in its fourth year, the 2024 ServiceLink State of Homebuying Report (SOHBR) features insights from homeowners who either purchased a home or tried to purchase a home within the past four years and focuses on yearly trends that provide valuable insights for lenders, servicers, investors and buyers alike.

“This is an interesting and pivotal moment in the housing and mortgage industries as the younger generations are not only determined to buy but are seemingly undeterred by the higher price tags and interest rates,” says Dave Steinmetz, president of origination services, ServiceLink, in a release. “Our study suggests that Gen Z and millennials are poised to impact the market in several ways including purchase, refi and home equity, which is an opportunity for lenders to educate and usher these younger buyers through the process.”

The survey reveals a strong correlation between generations and the highest interest rate they would accept for a new 30-year mortgage. Despite typically having lower incomes, the youngest generations are more willing to pay higher future interest rates than their older counterparts.

Gen Z homeowner respondents – with an average current interest rate of 5.4% – would consider going as high as 6.3% in 2024. Millennials, with a current interest rate of 5.2%, would consider 6.2%; Gen X’ers, with a current interest rate of 5%, would consider 5.8%; and baby boomers, with a current interest rate of 4.6%, would consider 5%, the research shows.

Those who purchased a home in 2023 are more likely to accept a higher future mortgage rate than those who purchased a home in 2020. Respondents who purchased a home in 2023 (with an average rate of 6.3%), would go as high as 6.4% in future mortgage rates, versus respondents who purchased a home in 2020, who have an average rate of 4.8%, would consider a 5.5% mortgage rate, at highest.

As far as attitudes toward refinancing go, 27% of all respondents say they would consider refinancing to get a better mortgage rate, while 22% say they would refinance to make home improvements, followed by 16% who say they would refinance to pay down debt.

The report also reveals that while home equity is rising, fewer people plan to tap into it this year. Thirty-four percent of respondents reported having more than $100,000 in home equity, up from 21% in 2023. Of this, 19% of this year’s respondents said they have more than $200,000 in home equity.

However, only 28% of respondents says they plan to take out a home equity loan.

Of those who plan to take out a home equity loan, 48% will do so to have extra money for home improvements – down from 73% in 2023 – while 23% say they will do so to pay off other debt.

The survey further reveals that Gen Z and millennials are interested in taking an alternative route to homeownership, with 54% of respondents saying they’re willing to purchase a home at auction this year – up from 40% in 2023 and 33% in 2022.

Millennials are the most likely to consider a purchase at auction, at 67% – up from 39% in 2023. In addition, 64% of Gen Z and 55% of Gen X also are willing to consider auction for a future purchase.

Forty-five percent of all respondents say they would use an auction purchase as a primary residence, while 23% would use an auction purchase to fix and flip.

The survey shows that some “would be” homebuyers abandoned the process in the last year, but plan to try again. Forty-two percent of respondents – both those who bought a home in the past four years and those who tried to buy – say they considered purchasing a home the past 12 months but decided against it. This included 32% of Gen Z respondents, 29% of millennial respondents, 25% of Gen X respondents and 14% of baby boomer respondents.

Forty percent of respondents say they decided against purchasing because mortgage rates were too high and the options were too expensive, while 33% say their financial situation changed.

Seventy-nine percent of respondents who unsuccessfully tried to buy a home over the last four years say they plan to try again in 2024.

Lastly, the report reveals that younger generation are embracing mortgage technology when it comes to the home buying process, with 60% saying they leveraged e-sign technology for some part of their recent purchase transaction. This includes 74% of baby boomers, 58% of millennials, 57% of Gen X and 50% of Gen Z.

Fifty-six percent of respondents say the key benefits of mortgage technology include convenience and ease of use, while 52% cite time savings.

Photo: Dane Deaner

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