On Tuesday, Fannie Mae released its latest contribution to a seemingly unending stream of research on one of the biggest problems facing the housing industry: What is preventing millennials from buying homes?
The thrust of Fannie’s report said that millennials have reasonable access to affordable housing but are not buying, largely for reasons already known: high unemployment, not enough access to downpayment capital, lots of student loan debt and subpar median incomes.
Fannie found that if the homeownership rates of 2006 had continued uninterrupted, there would be 2.4 million more young homeowners today. At the same time, some three-quarters of young people are now spending 30 percent of their income on housing, less than at other times over the past decade.
Good news found in Fannie Mae’s report: Homeownership rates among millennials are falling, but moderating. Between 2012 and 2013, the homeownership rate fell 0.8 percent, the first time it declined more slowly than the homeownership rate for all households.
“Multiple factors — including labor market conditions, housing costs, the length of educational careers, decisions related to marriage and childbearing, student loan debt, mortgage credit accessibility and cost, and lifestyle preferences — affect the magnitude and nature of housing demand among young adults,” the report stated.
“Absent a more robust labor market rebound, housing demand among young Americans, who traditionally represent potential first-time homebuyers, is likely to remain subdued,” added the report.
Millennials, however, will eventually begin buying homes. According to National Association of Realtors (NAR) estimates, they represent 31 percent of all homebuyers in the U.S., the largest share of any age group. To prepare the next generation’s entry into housing, experts say, mortgage lenders and other real estate professionals must make several changes.
Call it the 20 percent problem — the recent revelation that most millennials think they need a 20 percent downpayment to qualify for a mortgage, which means they may not know about low- or no-downpayment mortgage programs offered by the Federal Housing Administration (FHA), the U.S. Department of Agriculture or the U.S. Department of Veterans Affairs (VA).
“I think there is potentially a gap in knowledge,” NAR Chief Economist Lawrence Yun told Scotsman Guide News. “Many young people believe that a 20 percent downpayment is the minimum needed to buy a home. If they don’t have savings to that magnitude, the idea of homebuying does not even appear on their radar screen.”
The NAR recently mapped the median age of homebuyers in every state. The national median age was 31 for first-time buyers, lower than Yun expected. “I anticipated the age would have risen a bit. The first-time buyer presence has been less than normal in recent years, due to slower job creation, student-debt load, and generally, people who are younger having less chance to develop a credit history,” said Yun.
The median age is now much older for all homebuyers, including second-time buyers and buyers of second homes. In California, for example, one of the biggest housing markets in the country, the median age of all buyers is 44 (compared to 34 for first-time buyers).
Yun suggested that the housing industry take into account the attitudes of young buyers. Younger buyers may perceive a barrier to owning because of having to pay taxes or pay for repairs — things that landlords take care of. Countering those negative attitudes might help millennials buy more.
“People just don’t want to be owners because of the responsibility that goes with it,” Yun said. “[Millennials] enjoy the current, more flexible lifestyle.”
Ryan Christensen helps run the popular Web-based real estate television channel, TheREsource.tv. The channel covers everything from mortgages to motivation, and attracts younger real estate industry employees.
Christensen, 27, is unlike typical millennials because, at age 18, he got his real estate broker’s license, flipped a home and used the profits to pay for his college education. His views about the industry, however, come from a typical millennial’s perspective.
Christensen said that if millennials are not getting good information on homebuying — whether it’s online or from a real estate industry source — they will probably turn to their peers. There may be a domino effect if their peers are not educated, or if their peers are not interested in buying.
He said that each previous generation had a good reason to buy a home. Boomers did it as an investment and because they were told renting was a waste. When Generation X was ready to buy, houses were seen as an asset with almost unlimited appreciation potential.
So, what reason do millennials have for buying? They grew up as the housing industry was collapsing, so convincing them that buying is a good investment may be hard.
Some millennials have told pollsters that they want to own simply to own. A big, overarching reason for millennials to buy the way generations past have, however, may not be there yet. Replacing the memory of the housing collapse with something more palpable may be an ongoing challenge for the housing industry — mortgage professionals in particular.
“We need to focus on why millennials should make [the decision to buy],” Christensen told Scotsman Guide News. “The hesitation we see a lot of is [millennials] don’t want to get locked down; they fear if they want to move in five years, they’re going to be stuck there.”
Reference Scottsman Guide-Neal McNamara Oct 1,2014