Millennials Increase Home Purchases–And They’re Smarter About it, Too
Mortgages to Millennial borrowers for new home purchases continued their ascent in June, accounting for 91 percent of closed loans, said Ellie Mae, Pleasanton, Calif.
And in a separate report, First American Financial Corp., Santa Ana, Calif., said Millennials’ preferences for a digital home buying experience actually helped reduce loan application defect risk.
The monthly Ellie Mae Millennial Tracker report said the percentage of Millennial home purchases continued to trend up; the 91 percent in June compared to 90 percent in May and 89 percent in April; in January, the figure was just 81 percent.
According to the Census Bureau’s, homeownership rates for Americans age 35 and younger increased slightly, representing 36.5 percent of all homeowners in the second quarter, compared to 35.3 percent in the first quarter.
The report said conventional loans remained attractive among Millennials, representing 69 percent of all loans closed in June, a slight uptick from 68 percent in May. FHA loans represented 27 percent of all closed loans to this generation, down one percentage point from the month prior. This is significantly higher than the Ellie Mae June Origination Insight Report data which showed FHA loans represented 20 percent of closed loans in the month for borrowers of all ages.
Average Millennial borrower FICO scores across all loan types rose slightly in June to an average of 723, up from 721 which held steady March through May. For purchases, the average FICO score was 746 for a conventional loan, 681 for an FHA loan and 744 for a VA loan.
Across all loan types, it took Millennials an average of 42 days to close on their loans in June, a day longer than in March, April and May. Purchases took an average of 41 days and refinances took an average of 45 days.
“As it remains a competitive, purchase-centric market, we will continue to keep a close eye on the purchase trends amongst Millennials,” said Joe Tyrrell, Ellie Mae executive vice president of corporate strategy. “This new generation of homebuyers wants the capability of an on-demand mortgage.”
And because of that, said First American Chief Economist Mark Fleming, the rate of loan application defect risk continues to drop. The company’s monthly Loan Application Defect Index for June, which estimates the frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications, said frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications decreased by 3.8 percent from May. From a year ago, the Index fell by 8.3 percent and is down by nearly 25 percent from its high point of risk in October 13.
First American reported the Defect Index for refinance transactions fell by 2.8 percent from May and by 1.4 percent from a year ago. The Defect Index for purchase transactions decreased by 3.6 percent from May and by 12.1 percent from a year ago.
“This officially marks a six-month long decline in defect, fraud and misrepresentation and risk on purchase transactions, which have traditionally been considered higher risk,” Fleming said. “Not only is the national trend positive, but loan application defect, fraud and misrepresentation risk is declining in practically every market in the nation.”
Fleming said Millennials have much to do with this decline. “In addition to their desire to be homeowners, millennials also expect a convenient, digital, highly automated and all-around better home-buying experience,” he said. “The mortgage finance industry has invested heavily in technology to meet this demand to compete for millennials’ mortgage loan business. The technology investment that has occurred in the mortgage industry in recent years to better serve millennial first-time home buyers also helped make the manufacture and underwriting of mortgage loans less risky with fewer defects and misrepresentation on loan applications. Sometimes, unintended consequences aren’t so bad.”
The report said states with a year-over-year increase in defect frequency were California (1.3 percent), Virginia (1.3 percent) and New Mexico (1.2 percent). States with the greatest year-over-year decrease in defect frequency were South Carolina (-25.0 percent), Vermont (-21.8 percent), Minnesota (-19.5 percent), Alabama (-19.1 percent) and North Carolina (-17.4 percent).
Among the largest 50 metros, markets with the greatest year-over-year increase in defect frequency were Virginia Beach, Va. (15.6 percent), Los Angeles (12.0 percent), Orlando, Fla. (8.4 percent), San Diego (7.5 percent), and Memphis, Tenn. (3.9 percent). Markets with the largest year-over-year decrease were Birmingham, Ala. (-26.3 percent), Raleigh, N.C. (-23.7 percent), Minneapolis (-20.9 percent), Austin, Texas (-20.9 percent), and Pittsburgh (-20.5 percent).