Despite Barriers, Millennials Breaking Into Housing Market

Millennials are making headway in this housing market despite rising interest rates, a cooling-off market and student loan burdens, according to three new reports.

Ellie Mae, Pleasanton, Calif., said Millennial homebuyers continued to close purchase loans in September, despite interest rates rising to the highest point in the year. The monthly Ellie Mae Millennial Tracker reported purchase loans continued to outpace refinance loans among Millennial borrowers. Eighty-nine percent of loan volume last month was for home purchases, three percentage points higher than a year ago. Eighty-eight percent of closed purchase loans were conventional mortgages, compared to 81 percent a year ago.

Ellie Mae reported Millennials still showed their preference for conventional loans with 68 percent of all loans falling into that category, while 27 percent of closed loans were FHA and 2 percent were VA.

“Despite rising interest rates, Millennials are still looking to buy homes,” said Joe Tyrrell, executive vice president of corporate strategy for Ellie Mae. “We’re still seeing the majority of Millennial loans fall into the conventional loan category, and with interest rates increasing, there is an even greater opportunity for the industry to educate these buyers on all of the options that they have available to them, including some of the higher loan-to-value products and FHA loan programs.”

The Mortgage Bankers Association last week reported the average 30-year fixed-rate mortgage rate rose to 5.17 percent, the highest rate since 2010.

Other Ellie Mae data:

–Across all home loans, it took an average of 42 days to close last month. A year ago, it took two days longer at 44 days to close. Purchase loans took an average of 41 days to close last month, compared to an average of 42 days to close a year ago. Refinance loans closed in 45 days last month, on average, compared to 46 days in 2017.

–Millennial males (both single and married) were listed as the primary borrower on 61 percent of closed loans in September. Women were listed on 32 percent and the remainder did not specify a gender.

–Ten percent of all home loans to Millennial borrowers were for refinances, while 11 percent of conventional loans were for refinances, both up one percentage point month-over-month for the quarter.

–Twenty-eight percent of closed VA loans in September were for refinances, a jump from 21 percent the month before.

–The average age of all Millennial borrowers was 29.7, essentially flat from 29.8 in July and August, and 29.4 a year ago.

In a second report, ValueInsured, Dallas, said Millennial homeowners among most eager to sell before prices fall, signaling more starter homes could enter market.

The company’s quarterly Modern Homebuyer Survey ( found 75 percent of Americans believe their local housing market is “cooling off,” of which 72 percent say they are not surprised. This shift in market perceptions follows five consecutive quarters where majority of Americans believed housing was overheated.

Among states with the most robust home sales activity, 22 percent of residents in California, 19 percent in Colorado, 36 percent in Texas and 22 percent in Washington say their local market is not cooling.

The ValueInsured Housing Confidence Index registered at 63.0 for all Americans in Q4, down 4.7 points in one year. Homeowners, historically the most confident segment on the Index, produced a score of 71.6 in Q4, the second-lowest level recorded in 30 months.

Joe Melendez, ValueInsured Founder and CEO, said the report indicates Millennial homeowners are among the most bearish. “Millennial homeowners’ outlook signals the starter-home seller’s market may have peaked,” he said. “This is meaningful, as starter-home owners’ hesitancy to sell and the subsequent inventory drought had been a key catalyst that drove up home prices in many major markets in recent years.”

“The ValueInsured Survey revealed some concerning evidence about the changing psychology of the housing market,” said Robert Shiller, the Nobel Prize-winning economist. “We will be watching these numbers as they unfold over the future.”

Melendez said theories for what inflated home values aside, many prospective homebuyers now plan to wait it out before pulling the trigger. “Southern California is in its worst housing slump in over a decade, Seattle leads the nation in fastest home-price drop, and North Texas has the largest sales decline in seven years,” he said. “Buyers have switched from hoop jumpers to bargain-hunter mode. Expect the market to stall in the near term.”

Meanwhile, Zillow, Seattle, said nearly one-third of renters who plan to buy a home in the next year are carrying student debt, which in some cases is limiting their potential home-buying budget by nearly $100,000-leaving them with fewer homes

The Zillow Housing Aspirations Report said the average monthly student debt payment for renters who are planning to buy a home in the next 12 months is $388. The highest priced home a renter with student debt could afford without spending more than 30 percent of their income on housing and student debt is $269,400, meaning they could buy just over half of the homes currently for sale. A renter without student debt could afford to buy a home that costs up to $361,800, or 66.4 percent of available homes.

Zillor reported student debt reached record levels this year, to $1.56 trillion in the third quarter.

“Higher education pays off when it comes to lifetime earnings and the long-term odds of homeownership, but carrying any kind of debt limits how much home buyers can afford,” said Zillow Senior Economist Aaron Terrazas. “For today’s generation of young home buyers, who came of age in a period of rapidly rising education costs, student debt payments can delay the pace of down payment savings and put a dent in their max price point once they do decide to buy.

With for-sale supply still tightest for the most affordable homes but increasingly available at higher prices, Terrazas said even a small reduction in a buyer’s target price point can result in substantially fewer options.

Nationwide, Zillow reported one-third (33.9 percent) of renters who are planning to buy a home in the next year have some form of student debt, whether it is for themselves or someone else. Student debt plays the biggest role in housing affordability in Las Vegas, where buyers with no student debt can afford a much larger share of the homes for sale than those with student debt (57 percent versus 29.3 percent, respectively). It makes the smallest difference in San Jose, California, where buyers with student debt can afford 11.7 percent of homes, compared with the 18.3 percent of homes that shoppers free from student debt can buy.