It’s difficult to overstate how important homebuyers under the age of 40 are to the housing market. September’s Ellie Mae Millennial Tracker reports that homebuyers between the ages of 21 and 40 accounted for 61% of all purchase loans in July.
In a record-setting year for mortgage originations, 28% of Millennials who aren’t yet homeowners say they are more interested in buying a home because of the pandemic, according to a September survey by Morning Consult.
Even though the economic downturn has hit them the hardest from a financial standpoint, they are highly motivated to move out of their current living quarters. The massive shift to remote work triggered by the pandemic has highlighted the disadvantages of too-small homes and given many Millennials the opportunity to flee high-cost cities and states to more affordable locations.
But many are still delaying their entry into the housing market. One reason is that the pandemic has exacerbated the existing shortage of home inventories. Currently, the median home price is $350,000, 11.1% higher in September compared to last year, as reported by realtor.com. And houses that came to market during this month sold in record time, 12 days faster than in the same period a year ago.
Millennials are also a generation with less savings and economic security, due to the Great Recession. COVID-19 has worsened this situation: According to a series of articles by Morning Consult, 80% of Millennials, more than any other generation, report that the pandemic has impacted their personal finances, with 39% claiming it has had a major impact.
Another recent survey by Point2 describes the high proportion of Millennials who are not yet homeowners and renting or living at home with parents as unprepared for the big step, even though 74% said that they want to buy within the year.
How can loan originators connect with these prospective homebuyers under 40, present positive information to dispel their concerns and encourage qualified borrowers to apply for mortgage loans? Consider a first-time homebuyer seminar via Zoom or Facebook Live® to share five important — and largely positive — messages about the current homebuying market:
1. Many Millennials are more prepared to buy a home than they think they are.
Last year, the U.S. Department of Housing and Urban Development reported that Freddie Mac’s research into millions of anonymous credit reports found that almost 46 million Millennials are financially ready to apply for a mortgage yet have not pursued homeownership.
2. Down payments aren’t as large a barrier as some prospective buyers fear.
Saving for a down payment remains the biggest barrier for first-time homebuyers, according to the Urban Institute. In a 2019 study, its researchers found that 39% of non-homeowners believe lenders require a down payment of 20% or more. In fact, down payments by first-time borrowers average about 6% for loans protected by mortgage insurance, according to the National Association of Realtors.®
3. There’s down payment help available.
According to the Department of Housing and Urban Development, there are more than 2,500 down payment assistance programs in the 31 largest metro areas nationwide, ranging from grants to interest-free loans and second mortgages, and offering an average $10,000 per homebuyer. The National Association of Realtors reports that the use of gift funds is also on the rise, with 20% of borrowers in the 30–39 age group receiving gifts from relatives or friends to help with their down payments.
4. Affordability remains better than historic norms nationally, thanks to record-low interest rates.
Arch Capital Services Inc.’s Chief Global Economist Ralph DeFranco, reports that the percentage of median income needed for monthly payments on a median-priced home is now only 27% vs. 41% in 2006 (when mortgage rates were around 6%). In addition, more first-time homebuyers who are working from home are venturing into the outer suburbs and small towns where affordability is often much better than in urban areas.
5. Low interest rates increase buying power.
Federal policies that have kept mortgage interest rates at record-breaking lows in 2020 are expected to continue into 2021. DeFranco says lower rates have increased buying power by 6% in 2020 (meaning buyers can afford a $318,000 home instead of a $300,000 home, with the same monthly payment).
In addition to delivering these messages to homebuyers one-on-one, you can use Arch MI’s comprehensive Road to Homeownership toolkit to set up your virtual first-time homebuyer seminar via Zoom or Facebook Live. Co-brand the materials with your business’s contact information and logo.
Since our Insights blog launched in 2018, we have covered many topics pertinent to loan originators and how to succeed in a challenging environment. As we wrap up 2020, an unforgettable year, tell us how you fared and what made it notable for you. Send us an email to share your take on it and suggest any topics you want us to report on in 2021.
 Our calculations are based on pre-tax median household income, a 10% down payment, escrow of annual expenses of roughly 1.75% of the initial home price (for insurance and property taxes) and the prevailing 30-year fixed-rate plus 0.75% to cover mortgage insurance and risk add-ons. It is “hypothetical” because it is not based on the front-end DTIs of actual loans.