These millennials aren’t buying… yet.
Shamel Washington is a 32-year-old professional who currently lives with his parents in New York. He hasn’t always been there. After graduating from a Philadelphia college, Washington accepted a job not far from his alma mater. But living on his own for four years was expensive, and the financial burden became too stressful. Washington decided to move back to his parents’ home in New York. It wasn’t what he wanted to do, but living with his parents was the best available option.
“With the amount of student debt I’ve accrued over the years,” Washington said, “it was impossible for me to comfortably pay my rent, student loan payment, car payment, and other bills. I’m thankful that my parents allowed me to move back in with them; I’m living rent-free, and I’m able to save money for a home. My fiancée and I are looking to move out of state in a few years, and renting is no longer an option for us anymore. Now that I have more of a handle on my finances, I’m ready to begin the homebuying process.”
It’s not uncommon for adult millennials to spend years living with their parents. The Social and Demographic Trends study by Pew Research Center examined trends among millennials across multiple areas. According to the report, 31.6 percent of young adults were living with a spouse or partner in their own household, and 32.1 percent of millennials were living with parents in 2014. The report also revealed that 14 percent of millennials were either living alone, with one or more roommates, or were a single parent. The remaining respondents, 22 percent, were living with a grandparent, in-law, or a sibling; a non-relative; or were living in group settings like a college dormitory.
Many millennials feel that they have not been presented with the same opportunities that previous generations enjoyed. Zillow’s Group Report on Consumer Housing Trends revealed that millennials have had the most difficulty entering the housing market due to rising interest rates and affordability. Millennials have also rented properties longer than previous generations, and 52 percent of buyers said they’ve considered renting for extended periods in order to save for a down payment and put it toward a house they like, according to the report.
Most millennials do want to own homes eventually, but some find the idea impractical or daunting given their current finances. They’re frustrated by comparing their parents’ prospects as young adults, decades ago, with their own meager ones in the present.
MaKenna Woods, a 24-year-old graduate assistant who is pursuing a doctoral degree in social work, often finds herself comparing her financial situation to that of her parents. She is acutely aware of the pressure to exceed her parents’ achievements.
“I am constantly comparing myself to my mother and where she was at my age,” Woods said. “At 24, she was already married with a child and one on the way. She and my dad owned a home and were making their way in life. Fast forward to my 24-yearold self, I’m still in graduate school renting a townhouse with a friend of mine. The idea of owning a home seems like a pipe dream—a goal that I will only be able to reach when I’m not inundated with student loans that are accruing interest.”
The prevalence of student loans causes a chilling effect on millennials’ homeownership ambitions. With a national student loan debt of more than $1.3 trillion, many millennials are bogged down by payments, with their high interest rates and long-term repayment periods.
Not every millennial is affected, but many members of this generation do harbor student debt or live in a home with family members who have accrued student debt. Harvard OIP revealed that more than 42 percent of millennials between the ages of 18 and 29 are currently living with student debt or know someone in their household who has student debt, while 48 percent of millennials say they do not have any student loan debt. Additionally, 57 percent of millennials in that age range believe that student debt is a major problem for young people in the United States.
Ryan Williams, a 25-year old business professional living in Dallas, shared the same sentiments as MaKenna Woods, saying that the market is in a different place than it was for previous generations.
“My parents were both 22 years old when they purchased their three-bedroom home in Garland, Texas,” Williams said. “Parents believe that kids should have an easier time purchasing a home because of all of the resources and opportunities available to us, but that’s not the case. They fail to factor in inflation and the big housing crisis, which make it harder for those in my age group to attain these goals. Millennials are barely making it due to other financial obligations, so purchasing a home gets put on the back burner."
A Different American Dream
There also seems to be a mismatch between where the jobs are and where real estate is affordable. Simultaneously, though most renters still want to become homeowner, the implicit social value of being a homeowner may not be as strong as it once was.
Erin Smith, a 33-year-old business professional living in Los Angeles, sees herself moving back to her hometown of Louisville, Kentucky to purchase a home. Los Angeles homes, which include celebrity-populated suburbs like Beverly Hills and Malibu, hold the title as America’s most valuable housing market and have a combined total value of more than $2.5 trillion—more than double the combined wealth of America’s 50 richest citizens, according to the latest Real Estate Analytics report by Zillow.
Smith is currently living in a rental property but is unsure if she wants to purchase a home. “
I’m not sure I want to own a house,” Smith said. “The reality is that I may not marry or have children, and the upkeep of a home can be time consuming and expensive. Right now, I don’t see myself owning a home in L.A. My entire family is back in Kentucky. My roots are there, and that’s where I also see my forever home being.”
The financial industry’s unapproachability—and dubious reputation—doesn’t help matters.
For example, Smith thinks that mortgage lenders can do more to improve their efforts in targeting millennials. She noted that many in her generation feel skeptical of homeownership because of the housing crisis.
“I actually don’t think I’m being targeted at all by mortgage lenders,” Smith said. “I, personally, am skeptical of the whole system because of the crisis back in 2007-2008. I remember working for a mortgage lender and learning about all the subprime loans and thought to myself, ‘Sooner or later this is going to get ugly,’ and it did. Because of that, people—especially millennials—are cautious about entering into a mortgage agreement.”
Making the Connection
Despite millennials’ sentiments toward homeownership, this generation is the future of the housing market. It is imperative that they are given the necessary tools and resources in order to succeed—otherwise many of us are out of a job.
How can lenders entice millennials? This is the question: In a market that’s itching to attract the next generation of homeowners, what can lenders do to draw millennials to homeownership? How can they be convinced to take that next step toward purchasing?
Joining the 21st century posthaste will help. Lenders and servicers are developing programs in the digital space to meet the needs of the average American homeowner, and as the industry becomes more inclusive, millennials are becoming part of the conversation and a consideration in organizations’ bottom lines. The importance of this demographic helps drive the development of web-based and mobile amenities.
Nationstar Mortgage, a nonbank servicer located in Dallas, is focusing on “keeping the dream of homeownership alive.” In an effort to fulfill the company’s purpose, Nationstar has reinvented its website in order to broaden its reach and cater to millennials. The website has a feature called Street Smarts, which allows customers to become more in tune with their finances. Customers can understand their FICO score, determine the amount of equity in their home, and use tools to view other home prices in their area.
The servicer also introduced a new mobile application that allows millennials to learn about their financial situation while on the go.
Kelly Ann Doherty, SVP of Corporate Communications for Nationstar, said she wants to encourage servicers to embrace millennials through education and assistance.
“Nationstar’s new website and mobile app speak to what needs to exist more broadly across the servicing industry,” Doherty said. “We need to focus on innovation and engagement. It’s not just about how quickly you can get a customer into a mortgage, but how you can form a lasting partnership with a customer and make them comfortable, educated, and empowered. This, in essence, is why we created these new tools. We want to put the service back in servicing. And for millennials, it’s about giving them the tools they need to feel confident in taking that next step in their homeownership journey and helping them become smarter homeowners.”
Doherty, who is in the process of purchasing her first home, is all too familiar with the homeownership dialogue.
“As part of the millennial generation, I know for me it was important to wait to buy. I wanted job security, an income to afford the neighborhood that I wanted to live in, and I was married,” she said. “You’re seeing millennials change careers more often. They’re getting married later in life. They’re starting families later in life. As a result, taking that step toward homeownership is happening later in their personal journeys as well. At Nationstar, we know this process is a journey and tools like our new site and app help ensure we can be with our customers every step of the way."
A Personal Touch
Millennials are keen on education. Lenders should take the time to understand what millennials want and offer detailed solutions in order to help them attain their goals. Digital tools are important for day-to-day use. However, contrary to popular belief, most millennials prefer to consult with professionals in person, rather than using technology, when making huge purchasing decisions. Buying a car or a home is a big commitment, and face-to-face meetings engender trust on both sides.
Dr. Svenja Gudell, Chief Economist at Zillow, said that as much as millennials enjoy technology, face-to-face interaction is best, especially when dealing with their financial future.
“Don’t assume millennials don’t appreciate a personal touch,” Dr. Gudell said. “They are just as likely as other generations to say they would like to meet their lender in person, and only one in 10 said they prefer communicating with lenders by text.”
Ed Robinson, President of the Cincinnati-based financial servicer Fifth Third Bancorp, said millennials are in need of guidance when going through the homebuying process, just like any other cohort of homeowners.
“When we work with millennials, we find they want much of what all homebuyers want: A guide through the house-buying process and a loan product tailored for them,” Robinson said. “This means listening and understanding what their goals are to learn which type of loan works best. Many millennials, who grew up with customization, come to the bank with the notion that there is only one home loan product: the 30-year loan that their parents had. We help them learn that it’s not the default loan anymore. For each purchase, loan originators look at the buyer’s financial situation and goals, and might suggest a 15- or 20-year loan. It might be better for a millennial to get a 20-year loan now to build equity and then move into something bigger in a few years.”
It’s All in the Incentives
Over the past few years, lenders and servicers have developed specific mortgage lending programs that cater to a millennial audience. Fifth Third has been offering the FHA loan to its millennial customers. The introduction of the company’s Down Payment Assistance Program has helped lenders better serve millennials by offering 3 percent of the purchase price in down payment assistance for low-income borrowers, or those purchasing in a designated low-income area and financed through Fifth Third.
Similarly, JPMorgan Chase’s new program Agency and DreaMaker allow first-time homebuyers to utilize low-down payment products for only 3 percent down, making homeownership more attainable for millennials.
Quicken Loans’ Rocket Mortgage has combined a focus on technology with lending programs retooled to appeal to millennials. They recently burst onto the mortgage scene with advertising campaigns aimed at this demographic. By contrast to Dr. Gudell’s advice to preserve the personal touch, Rocket Mortgage is a technologydriven lender that enables millennials to forgo paperwork. Rocket’s seamless digital lending application process can be completed at any time via mobile device or online—an advantage that directly competes with the limited hours provided by banks and traditional lending institutions.
Bill Banfield, VP of Capital Markets at Quicken Loans, is responsible for credit and margin management, product development, and other functions related to capital markets. He said Rocket Mortgage has a strong appeal with first-time homebuyers, and the company has seen an increase in online activity since the implementation of the mortgage program.
“While millennials are more likely to use Rocket Mortgage, the product’s user base spans every age group,” Banfield said. “Since we launched Rocket Mortgage a year ago, we’ve seen a strong homebuyer population, with two-thirds of clients who use the product being homebuyers. Of those users, 72 percent are first-time home buyers. This is proof that a completely online and on-demand experience directly appeals to this demographic.”
Wells Fargo’s is also getting into the millennial game with its yourFirst Mortgage program, which provides young homebuyers with an educational resource that also aims to make homeownership seem more attainable. In conjunction with Fannie Mae and Self Help, the program allows customers to lower down payments and out-of-pocket costs, work with Home Mortgage Consultants to assist with mortgage decisions, offer additional income and credit guidelines, and expand on their responsible lending history.
Some resources are being devised to help mortgage lenders and servicers figure out how best to serve millennials. One such resource is Ellie Mae’s Millennial Tracker, which brings data about the homebuying millennial straight to mortgage lenders and servicers. The monthly tracking tool is designed to give lenders insight into the millennial generation, so they can better address their needs.
The housing industry remains uncharted territory for many millennials. Facing financial challenges, this generation of Americans is determined to better understand the market before diving in themselves. But they do intend to do that; according to a recent survey by the Demand Institute, 60 percent of respondents expect to become homeowners in the future. Perhaps the way forward is through personal agency. Millennials who resolve to steer their own fate will surely face more success when it comes to buying a home and managing a mortgage. A Harvard Joint Center for Housing Study on Homebuying Trends found that millennials are forced to succeed in an era of low incomes and high rent prices and are more attentive when it comes to credit scores and homeownership.
Britney Miller, a 28-year-old sales representative living in Tucson, Arizona, feels that in order to succeed in today’s housing market, she has to take more responsibility for improving her financial situation.
“I have to admit, I wasn’t the best when it came to my finances when I was younger,” Miller said. “I didn’t take anything my parents or financial professionals said seriously, and in turn, I saw my finances dwindle before my eyes. It’s taken years for me to rebuild my savings and improve my credit score, which are two factors that matter when applying for mortgages. As I got older, I began to understand the value of financial literacy, and there are so many resources out there to educate yourself about your personal finances and what it means in the long run.”
The essential human desire for shelter and sovereignty, expressed as the American Dream, remains even as normal Americans struggle to attain it. Mortgage lenders and servicers who can tap into that desire, and help their customers fulfill it, will prosper.
Millennials are certainly not bereft of the desire for Virginia Woolf’s “room of one’s own.”
For example, newlyweds Ines and Bruce Lower have always dreamed of being homeowners. After renting two apartments, they’ve made the decision to step into homeownership and are on the search for their perfect home: a three- or four-bedroom property in either Lake Nona or Winter Park/ Maitland, all located in Central Florida. Ultimately, they want a place where they can raise a family.
Since starting their journey toward homeownership, they’ve frequented Zillow, The Wall Street Journal, and local news publications like the Orlando Sentinel to stay abreast of market trends. They’ve also sought advice from friends and family who have gone through the homebuying process before.
As it turns out, the Central Florida market has been booming recently, with multiple cities boasting higher median home prices and more closing sales, according to the Orlando Regional Realtor Association. And according to Zillow, the median home value in Winter Park has increased more than 13 percent over the last year and is expected to rise another 4.6 percent this year.
Though the Lowers have not yet chosen a mortgage lender, they are currently looking at multiple options and have met with various lenders and financial advisers throughout the past few months.
They’re an example of millions of American millennials who aspire to become homeowners, falling right in line with the latest National Association of Realtors’ Home Buyer and Seller Generational Trends study. You won’t be surprised: the main reason millennials purchase a home is simply the desire to own their own place.