TheMReport — News and strategies for the evolving mortgage marketplace.
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14 | Th e M Rep o RT cover story was once considered a critical piece in growing into adulthood. "I think that the Great Recession had an impact on the millennials similar to the impact the Depression had on my parents and grandparents in that prior to the Great Recession, people were looking at housing as invest- ment and quality of life," said Phil Comeau, CEO of Phillip E. Comeau Inc. and former vice pres- ident of Non-Performing Loans at Freddie Mac. "That has shifted quite dramatically. The millennials are saddled with student debt, and that will impact them for at least a generation." Despite the Treasury's recent announcement that it anticipates student loan debt to slow due to a drop-off in loan originations in the past 24-months, the current $1.2 trillion debt load is bringing the millennial home purchase power to a halt. One Big Happy Family…Still S o, where are the millenni- als living? According to data from the Pew Research Center, 21.6 million Americans between the ages of 18 and 31 (also known as, le millennial) are staying with their parents, up from the 18.5 million in 2007. Those who aren't living with their parents however, are exploring homeownership in other ways. "I think that rental housing has become a much more viable option, particularly now that rental housing is being done by large institutions and professional management companies," Comeau said. "Currently, there are 22 mil- lion one- to four-unit rental homes in the country, there are about 17 million apartment units." Comeau says that the rise in professionally managed rental properties is attractive to a millen- nial generation that wants skin in the housing game without long- term commitment, which is the larger part of the issue. Millennials are waiting longer to do the things Boomers did in the mid-20s. "There's a longer trend of younger people marrying later and choosing the more urban exis- tence," said Jeb Mason, a Partner with the Cypress Group and for- mer deputy assistant secretary of the Treasury. "I think it's difficult to separate out which is purely an economic phenomenon or a cultural phenomenon." Couple that trending with the lack of ability to make a down- payment to purchase a home, or have the credit rating that will allow a consumer to even be ap- proved for a loan is concerning, Comeau says, but what is more concerning according to some industry experts is the square peg, round hole mentality in the hous- ing industry. "We've become a more transient society where people are moving, and so as an industry we have to really take a look at the traditional 30-year mortgage product and see if that still works" Konyk said. "Will a balloon payment work? How will we adapt a portable mortgage product? We just don't know yet." Consumers are on the move. According to the Census Bureau's Current Population Survey num- bers, the current mobility rate is 11.7 percent, meaning that despite seeing a slight stagnation from the previous quarter, Americans are still looking for better oppor- tunities. A recent Trulia survey found that better and cheaper housing is still the primary reason people move, while finding better employment opportunities is a close second. That may continue to change, the first half of the year saw improving labor numbers, but the past two months have seen a decline in the previous growth. "We seem to have a mania- cal fixation on pushing the same product onto a different genera- tion," Konyk said. "And, we need to ask ourselves, are we match- ing the product to the demo- graphic and demand? I'm not sure we have an answer to that. That's what concerns me, are we comfortable with what we have? Are we trying to force an older product on a new reality?" Regulations Pushing Millennials from Homeownership T he reality of today is that a perfect storm is brewing ac- cording to industry analysts. To- day's housing market shows one demographic aging out and an- other too skittish to join due to market conditions beyond their control, including a heightened regulatory environment that has lenders reticent to extend a line of credit or approve a loan. "The other thing that's going to slow down the millennials is the Dodd-Frank regulations and the CFPB. It's having an adverse im- pact of having lenders take on the risk of lending," Comeau said. The industry has now had almost a full year to adapt to the regulations, but changes have come and will continue to come down the pipe for years having an indirect impact on those who are looking to move into their own homes in the next ten years. Add to that, natural market cycles are going to begin to right themselves along the way and interest rates will continue to rise. The world economy needs a cer- tain amount of inflation, Comeau says. With that, he anticipates that "We seem to have a maniacal fixation on pushing the same product onto a different generation. And, we need to ask ourselves, are we matching the product to the demographic and demand?" —Jack Konyk, Weiner Brodsky Kider