TheMReport — News and strategies for the evolving mortgage marketplace.
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28 | Th e M Rep o RT Feature dollars in student loans, just to name a few. And certainly that's a high fence to jump. But there's also something else at play here. Attitudes may be shifting, but so are the nation's demographics. People are often remiss that the American Dream is changing, because America is. Among the most influential group in the future of housing are the millennials, people aged between 18 and 36 years old. They are the most ethnically diverse population—the Urban Institute says minorities are expected to ac- count for 77 percent of new house- hold growth this next decade—as well as the most highly educated. Whereas their parents and grandparents often married out of high school or college, started a career, purchased a home, and be- gan their families—that's not their likely trajectory, today. In fact, fewer than 22 percent of millenni- als are married, compared with 42 percent for baby boomers at the same age, according to Nielsen. While generational attitudes may have much to do with mil- lennials' living choices, the Great Recession has played an enduring role. Many people in this group witnessed the American Dream crumbling before them, either first- hand in their own lives, within their own families, or as it played out in the media. Supporting millennials by under- lining the benefits of homeowner- ship is key to the housing recovery, said Lawrence Yun, chief economist at the National Association of Realtors (NAR), in the organiza- tion's 2015 generational survey. "Many millennials have endured underemployment and subpar wage growth, and rising rents and repaying student debt have made it very difficult to save for a down payment. For some, even forming households of their own has been a challenge," Yun said. "Fixed monthly payments and what the long-term financial stability homeownership can provide are attractive to young adults despite them witnessing the housing downturn and subse- quent slow recovery in the early years of adulthood." Despite Hardships, Optimism Persists T o be sure, millennials—and others—do want to buy homes. In June, Fannie Mae's National Housing Survey suggested that many renters aged 18-34 choose to rent because of the current inability to own a home—not because they don't want to. In fact, the desire to own their own homes is "no differ- ent from that of their parents and previous generations." For a second year in a row, millennials actually represented the largest share of buyers, with 32 percent of the market, followed by Generation X at 27 percent, baby boomers at 31 percent, and the silent generation at 10 percent of purchases, according to NAR's 2015 Generational Survey. Writing for Bloomberg Briefs this June, Douglas Duncan and Sarah Shahdad of Fannie Mae said 96 per- cent of millennials are optimistic that they will eventually own a home. "By comparison, the homeowner- ship rate for Americans 65 years of age and older peaks at about 80 percent," they wrote. "Millennial renters often say that their primary reason for renting now is to prepare financially for homeownership in the future. This seems to be accepted as a necessary step with no stigma attached to renting as a choice—as seen in the longer renting experience of millennials as they work through their decision poten- tially to purchase a home." Most millennial renters also be- lieve owning a home makes more sense than renting from a finan- cial standpoint, because they are protected against rent increases and owning is a good investment in the long run. "Even after the housing crisis, they are more likely (at 59 percent) to describe owning a home as a safe investment," the pair adds. "And a smaller majority also think owning makes more sense from a lifestyle perspective because you have more control over where you live and a better sense of privacy and security." Pursuing the goal of homeowner- ship seems to be in line with find- ings reported in the latest Housing Confidence Index released by Zillow. The report says roughly 5.2 million renters expect to purchase a house in 2015, up from 4.2 million just one year earlier. As millennials continue to be on the move, many economists believe the pent-up demand will help drive the housing market back to normal levels. Until then, however, financial ob- stacles stand in the way. A majority of renters remain concerned about saving enough for a down payment and establishing good enough credit to secure a home loan. "We are at the beginning of a multi-year period where more young people become homeown- ers," Jed Kolko, chief economist at Trulia, a real estate website and unit of Zillow, told Bloomberg. "But I think it will happen more slowly than most people expect." Capture Demand with Education D espite the drop in home- ownership rates and the continuing financial hurdles of consumers, 2015 has managed to show a few bright spots. Home affordability has risen to an all-time high; a combination of rebounding home prices over the past seven years and low interest rates that have hovered just above 4 percent, mean that now is a great time to buy. In fact, with rental costs rising the way they are, the cost of homeownership is roughly 38 percent less than renting, ac- cording to Trulia. Unemployment stands at 5.5 percent, hourly wages are increasing, and consumer confi- dence is growing. All of the pieces are in place to drive housing, so what is it going to take to nudge would-be homebuy- ers into the pipeline? As mortgage professionals, we tend to focus on people who are already prepared to purchase homes. But with the im- proving economy, and with many millennials entering their early 30s—long seen as the peak time for homebuying—we must get ahead of the application process and take advantage of the coming demand. The biggest obstacles to home- ownership often stem from mis- conceptions about creditworthiness and how one goes about saving for a down payment. Having the right consumer education in place can help ease buyer's anxieties. Though the general recom- mendations require a credit score upwards of 700 and a 20 percent down payment, there are many state and federal programs that have emerged to help bolster the first-time homebuyer market. A lot of prospective buyers aren't aware of these programs, or how to go about monitoring their credit before applying for a home loan. It's our job to keep them in the loop. For example, Fannie Mae an- nounced a 97 percent loan-to-value option for first time homebuy- ers. Other services such as credit monitoring and down payment assistance are expanding as well. Consumer education doesn't have to be complicated. Offering credit monitoring in-house, holding first- time homebuyer seminars, or simply hosting a blog that covers saving tips, housing industry news, and a clear breakdown of the homebuy- ing process can all serve to keep potential buyers well informed. For those of us in the mortgage industry, it's important to take into account not only the financial hurdles of our potential customers, but also their psychological ones. It's our responsibility to combat mis- construed assumptions with more consumer education—and assuage their fears by reinforcing the benefits of homeownership. While the housing crash has undoubtedly left a scar on the nation's consciousness, mortgage professionals can do their part to swing the pendulum back toward homeownership, keeping the American Dream alive and well. Chad JaMpedro is the president of GSF Mortgage Corp. With nearly 20 years in business, GSF Mortgage has embraced the next generation of homeowners with its GOGSF brand, continuing its dedication to flexible and transparent lending. With more than 140 team members in 26 locations across the Midwest and East Coast, GSF Mortgage keeps "Lending in Your Favor." Reach Jampedro at cjampedro@gogsf.com.