MReport April 2017

TheMReport — News and strategies for the evolving mortgage marketplace.

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48 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T ORIGINATION THE LATEST Millennial Market Share Grows After delaying homeownership, millennials are now making up a majority of new home purchases. T he Ellie Mae Millennial Tracker report showed at the start of March that loans to millen - nial borrowers for new home purchases continued to climb in January to 84 percent of closed loans. In December, 82 percent of closed loans were for new home purchases, up from 77 percent from August to November. The hottest housing markets for millennials were in the Southeast. The top markets by percent - age of millennial loans closed included Enterprise, Alabama, and Owensboro, Kentucky. Across all loan types, it took millennials an average of 49 days to close on their loans, a day longer than in November and December. Purchases averaged 46 days, and refinances averaged 58 days. Of the closed loans, FHA remained attractive among mil - lennials, accounting for 35 percent of all loans closed in January, up from 34 percent in December. This is significantly higher than the Ellie Mae January Origination Insight Report data, which showed FHA loans represented 21 percent of closed loans in the month. FICO scores across all loan types fell slightly in January to an average of 724 from their peak of 726 from August through October. For purchases, the average FICO score was 748 for a conventional loan, 690 for an FHA loan, and 734 for a VA loan. Among millennials, the benefit of FHA loans is tied to FICO scores. "It is not surprising to see millennial borrowers leverage FHA loans because they typically offer lower down payments and lower average FICO score require - ments than conventional loans," said Joe Tyrrell, Ellie Mae's EVP of Corporate Strategy. "As more millennials enter the market, we expect to see the popularity of FHA loans continue to increase." According to the Q2 2016 Zillow Housing Confidence Index, nearly 70 percent of mil - lennials associate homeownership with the American Dream. That dream is reflected in increases in closed loans and rising ownership, but trends are emerging that show the impact millennials are having in the real estate market. Currently, 50 percent of millen - nial homeowners live in the sub- urbs, and the majority purchased a home in the same city where they already lived, revealing their home-buying preferences now that they are the largest gen - erational group in the housing market. One-third of millennial homeowners live in an urban neighborhood, and just 20 percent live in a rural area. "We're constantly learn - ing about this young group of homebuyers—we're finding that they are more similar to older generations than many thought. Their views on community and homeownership are pretty traditional, and they don't all fit the urban stereotype you might have in your head," said Jeremy Wacksman, Zillow Group Chief Marketing Officer. However, millennials put off homebuying until recently, and it was difficult to know where they would actually purchase homes when they started buying, accord - ing to the Zillow Group Report. "Millennials have delayed homebuying more than earlier generations, but don't underesti - mate their impact on the housing market now that they're buying," Wacksman said. "As members of this huge generation start moving into the next stage of life, expect the homeownership rate to tick up and suburbs to change to suit their urban tastes." The median age of a first- time homebuyer is 33 years old, compared to 29 a generation ago. Millennials tend to skip the tra - ditional starter home and choose larger properties with higher pric- es. They pay a median price of $217,000 for a home that is about 1,800 square feet, similar in size to what older generations buy. They also share many preferences with their grandparents' genera - tion—both choosing homes with shared community amenities and considering townhouses at higher rates than other generations. Geographically, 64 percent of buyers who moved in the past year stayed in the same city, and just 7 percent moved to a different state. Cities that boast a large number of millennials include San Diego and Austin, Texas, with 30 percent. Los Angeles; San Antonio, Texas; and Columbus, Ohio also have millen - nial populations of over 25 percent. The Ellie Mae Millennial Tracker is an interactive online tool that provides access to up-to-date demographic data about this new generation of homebuyers. The Millennial Tracker is a subset of the Origination Insight Report, which details aggregated, anony - mized data pulled from Ellie Mae's Encompass origination platform. Mortgage Rates Continue to Rise Mortgage rates have been increasing since November. T he Federal Housing Finance Agency reported at the end of February that mortgage rates in - creased from December to January and, according to several indices of new mortgage contracts, interest rates on conventional purchase- money mortgages also increased. Since November 2016, the mortgage rate has been on a steady incline. The national average mort - gage contract rate for the purchase of previously occupied homes by combined lenders index was up 22 basis points from December, from 4.00 percent to 4.22 percent. In addition, the average inter - est rate on all mortgage loans increased by 26 basis points, from 3.91 percent in December to 4.17 percent in January, while the av - erage interest rate on conventional 30-year, fixed rate mortgages of $424,100 or less increased by 29 basis points to 4.37 percent from December's 4.08 percent. The effective interest rate on all mortgage loans increased 31 basis points to 4.30 percent in January. With the increase in interest rates during the month, the average loan amount decreased by $13,700, from $319,100 in December to $305,400 in January.

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