FEAT U R E
The Millennial Mortgage Mess WE KNEW THAT THEY WOULD BE DIFFERENT. SO NOW WHAT?
I
By R O B CHR IS M A N, M ORTG AGE BAN KE R M AG A ZIN E CON TRIB U TIN G WRITER
n the past we never named generations. That changed when former People Magazine editor Landon Jones named the “Baby Boom Generation,” and now the pattern has stuck. Millennials, categorized by the Census Bureau as having been born between 1982 and 2000, are now the nation’s largest generation, numbering 83 million and representing more than one quarter of the nation’s population. Their size exceeds that of the 75 million Baby Boomers. After years of depressed homeownership rates for the generation, it seems they finally want a place to own. What are lenders doing about it? Millennials have prided themselves on renting to stay nimble and keep work opportunities open, but the last 14 months during the pandemic have showed lenders that they’re ready to buy. Millennials have been steadily making up a slightly larger share of the nation’s home purchases each year. The figure rose from 34 percent in 2017 to 38 percent in 2020. First-time home purchases have exhibited similar growth, from 31 percent to 33 percent over the last three years.
MATH PROBLEM
Despite the millennial homeownership rate increasing faster than that of other generations over the past half-decade, at age 30, fewer millennials own homes (42 percent), versus 48 percent of Gen Xers and 51 percent of boomers when they were the same age. The 2020 millennial homeownership
6 MORTGAGE BANKER | JUNE 2021
rate stood at 48 percent, accordmost saying they simply cannot afford homeownership. (“Foring to the most recent data from ever” is a long time.) Other reathe Census Bureau. For people sons for renting included added aged 40 to 55 in 2020 (Gen X), flexibility, avoiding unforeseen the homeownership rate is 69 maintenance and expenses and percent. Baby Boomers have the the feeling that buying a home nation’s highest homeownership is financially riskier than renting rate at nearly 79 percent. one. Homeownership has always Affordability remains the bigROB CHRISMAN been a vehicle for wealth creation gest hurdle to prospective milin America but as the wealth gap lennial home buyers. It’s not that widens between homeowners and renters, all of them don’t want to own a home, it’s some millennials feel they have missed the that they can’t, mostly due to the cost of a boat all together. down payment. 40 percent of millenniAs this current generation of home buyals say the COVID-19 pandemic has had ers has aged, they have seen that lenders are a direct effect on their homeownership not evil as informal opinion believed ten plans, due to partial or total income loss, a years ago. In fact, the vast majority of lendreduction of down payment savings, or the ers are very helpful. This wave of new buyers feeling that homeownership is no longer a will have the opportunity to build and pass smart decision in a volatile economy. on wealth, and shape the market for years to come, many by using a reputable lender to help finance a home. This is in contrast to the financial crisis of 2008, many people bought homes they couldn’t afford, allowing investors and developers to absorb foreclosures and distressed sales.
IN 2020, MORE THAN 18 PERCENT OF MILLENNIAL RENTERS SAID THEY PLANNED TO RENT FOREVER
Lenders should take note. In 2020, more than 18 percent of millennial renters said they planned to rent forever, up from 12 percent in 2019 and 11 percent in 2018, with
TRADING UP
First-time millennial buyers are indeed buying homes with the knowledge their first home may not be their dream home. Millennials are more open to multi-family options like condos and quadraplexes, converted commercial buildings, or accessory dwelling units so they can start building wealth despite today’s low inventory of
