Opening the credit box for millennials, while still maintaining the high standards of credit quality, established in the wake of the housing crisis, will help the mortgage industry move more millennials from renters to homeowners.
This is beginning to happen.
A FHA insurance premium reduction in January has proven to be a key catalyst in helping to move millennials into homes. The reduction is expected to spur 250,000 people to buy their first home over the next three years, according to FHA estimates.
The premium reduction and its effects were among the topics discussed recently when George Washington University hosted the town hall meeting “Millennials and the Housing Market” with Realtor.com Chief Economist Jonathan Smoke and U.S. Housing and Urban Development Secretary Julián Castro.
Millennials, born between 1981 and 2000, make up about 27 percent of the U.S. population and are the largest share of homebuyers at 32 percent. They constitute 68 percent of first-time homebuyers and outnumber baby boomers by 8 million. These statistics are some stark reminders of their importance. Still, only 40 percent of the cohort own homes while 60 percent rent.
"Opening the credit box for millennials, while still maintaining the high standards of credit quality, established in the wake of the housing crisis, will help the mortgage industry move more millennials from renters to homeowners." -Jeannie Smith, Loan Officer and VP of Sales at Guardian Mortgage
Recent credit availability changes are enabling this generation to move from renters to homeowners, further strengthening an already strong housing market.
Smoke said there was an “almost overnight 30 percent change” in the market share of people using FHA loans following the premium reduction. About 37 percent of this year’s mortgages to millennials were in the form of FHA loans, which allow for a lower down payment and lower credit scores than a conventional mortgage.
The average millennial FICO score for all mortgages this year (through September) was 714, but the average FICO score for millennials getting FHA loans was 682, according to Realtor.com.
While it may have been too easy to get a home loan a few years ago, it has been extremely difficult for many millennials to do so since the housing crash. Overlays by mortgage lenders—tightening the credit requirements beyond what is required by the FHA, Fannie Mae and Freddie Mac—have exacerbated the situation.
We are encouraged by the current direction of the housing market as it looks for ways to make credit available to responsible borrowers.
“The work that FHA is doing is foundational work to ensure that we keep safeguards in place so we don’t slide backward,” says Castro, “but we also open up the credit box so that folks who are responsible are able to get access to credit.”
Balance, to be sure, is key.
Millennials are beginning to feel more positive about the outlook of the country, according to recent surveys, and they have a more positive view of the economy and their own financial situation, which should drive more toward homeownership.
Our future housing health depends on them.
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