Millennial Home Buyers Increasing, But Still Face Barriers
Despite increases in Millennial participation in the home-buying market, two reports suggest Millennials continue to face barriers that impede their entry into the market.
Earlier this month, Ellie Mae, Pleasanton, Calif., reported an uptick in both the purchase and refinance shares of Millennials. A separate report from Redfin, Seattle, said the low interest rate environment is making home purchase more conducive for first-time home buyers. But reports this week from LendEDU, Seattle, and Genworth, Richmond, Va., say the Millennial juggernaut has yet to materialize.
The LendEDU study, the second of two such studies, cites several factors: lack of knowledge about the mortgage process; lack of savings; and huge student loan burdens. While the study noted 58 percent of Millennials who responded to survey questions said they currently own a home, the 42 percent who said they aren’t generally said they want to become homeowners, but cannot at the moment.
When asked if they wish to become a homeowner at some point in their life, 89 percent said yes. When asked how long they think it would take them to achieve that goal, 65 percent said within the next five years; 21 percent said six to 10 years. The rest said it would take 10 years or longer.
The study said 55 percent of respondents believed lack of knowledge about homeownership and mortgages have prevented them from already owning a home or taking longer than expected to become a homeowner. Twenty-six percent cited lack of savings; 24 percent cited “low income;” and 10 percent cited “overwhelming student debt.”
And these barriers, LendEDU said, are holding up Millennials’ other plans, such as marriage (13 percent); having children (16 percent); and changing jobs (14 percent).
“Taking in 26% of all answers, millennials most often cited a lack of savings as the reason why they are not homeowners,” said report author Mike Brown. “Monthly mortgage payments can get quite steep and require a serious financial commitment that usually calls for having at least three months’ worth of payments stowed away in savings, so this result makes sense.”
Brown said it was “concerning, albeit not surprising,” to see debt-related answers take up a combined 21% of the answers. “The millennial struggle with debt, especially related to student loans, is widely publicized, and it’s quite obvious that this uphill battle is having secondary effects on the wider economy,” he said.
Despite these concerns, Brown said there are positive and negative implications. “Positive because it is good to see that millennials are aware of their problems, rather than ignoring them, and responsibly holding off on homeownership as that would only exacerbate their personal finances,” he said. “Negative because it is disheartening to see so many members of this generation struggling financially for a plethora of reasons that leave them unable to progress in life.”
The study can be accessed at https://lendedu.com/blog/why-millennials-arent-becoming-homeowners-survey/.
Meanwhile, Genworth Mortgage Insurance said while lower mortgage rates, slower home price growth and faster income growth improved housing affordability, there was no rebound in the first-time homebuyer market in the first quarter.
The company’s 2nd Quarter First-Time Homebuyer Market Report (https://miblog.genworth.com/first-time-homebuyer-market-report/) for the first time, the year-over-year growth rate in home sales to first-time homebuyers underperformed the overall single-family housing market. However, first-time homebuyers represented 36 percent of all buyers in the single-family housing market and 55 percent of new purchase borrowers.
Other report highlights:
–Single-family home purchases decreased in the second quarter by 4 percent from the first quarter to a seasonally adjusted annual rate of 1.94 million.
–559,000 single-family homes were purchased, a 4 percent decline from a year ago.
–The slowdown spread to 43 states compared to 39 states in the first quarter; nine states reported increased first-time homebuyer activity
–Overall, 424,000 first-time homebuyers used some form of low down payment mortgage products to finance their home purchase in Q2
“The contraction in the number of first-time homebuyers came as a surprise because the overall housing market has seen a moderate rebound compared to Q4’18,” said Tian Liu, Chief Economist with Genworth Mortgage Insurance. “Housing affordability continued to improve, driven mainly by falling mortgage rates, and also was supported by falling home price growth and faster wage growth. While falling mortgage rates are the result of higher economic uncertainties, and could negatively affect buyer confidence, they are still a net positive for the housing market in Q2. Low down payment mortgages remain at the core of mortgage financing for first-time homebuyers, and we’re continuing to watch the shift away from government loan programs toward conventional loans with low down payments.”
