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   ARTICLE   |   From Scotsman Guide Residential Edition   |   June 2017

Modern Homebuyers Have Arrived

Determining how to deliver what today’s borrowers want is vital

SIDEBAR

At a Glance

New initiatives to address the unique demands of modern homebuyers must facilitate:

  • Friends buying homes together;
  • Parental lending and gifting of downpayments;
  • Homebuying for multigenerational households;
  • Assistance focused on newly minted Americans and homebuyers who need language and relocation assistance; and
  • Risk-transfer programs that facilitate a shorter duration of homeownership.

Our economy is on an upswing. The U.S unemployment rate declined to a post-recession low this past April, dropping to 4.4 percent, the lowest mark since 2007. We also are in a four-year run of historically low mortgage interest rates, even with the Federal Reserve’s move to push up short-term rates. With these favorable economic factors in place, why is the homeownership rate at the lowest level in five decades?

One key trend that has kept housing growth from kicking up to the next gear is the delayed entrance into the market of millennial first-time homebuyers. Millennials are in an age group that has traditionally supplied a steady stream of first-time homebuyers to the American housing market. Their homeownership rate, at 34.7 percent as of year-end 2016, or almost half of the overall U.S. homeownership rate, is seen as the biggest culprit for our current overall low homeownership level.

In that light, it is sensible to ask this first question: Do millennials even want to own homes? Apparently, yes, they do. According to ValueInsured’s Modern Homebuyer Survey, more than eight in 10 millennials (83 percent) believed owning a home is an important part of their personal American Dream.

Nerdwallet published an in-depth report last year citing their own research, as well as findings from Zillow and Fannie Mae, all of which pointed to the same homeownership desire among millennials. Many experts conclude that a major factor contributing to the millennial generation’s low level of homeownership is affordability, coupled with a delay in life-stage transition — which is at least partially affected by affordability.

The millennial challenge

To understand the low millennial homeownership level, one must first appreciate other records set by millennials. The average 2016 college graduate owes an unprecedented $37,172 in college loans, which doubles what their predecessors owed just 12 years ago — before the 2008 housing crisis.

Thirty-five percent of today’s millennial men live at home with their parents — again, you guessed it, a record high. Not surprisingly, the economic domino effect helps to contribute to other records. Only 26 percent of millennials are married today, compared to 48 percent of baby boomers when they were the same age. The Pew Center predicted that a quarter of millennials will never be married. Not surprisingly, millennials also are having children later in life, giving them another reason to delay becoming homeowners.

Economics, however, do not tell the whole story. Culturally, today’s modern homebuyers live differently than the previous generation. Having grown up in a technology age that drives new consumerism in trial size and short vignettes, mobility is the new normal and permanence is becoming rare. Millennials change jobs on average every 2.8 years. Private car ownership is not a high priority among many millennials and car sharing has increased, along with music sharing, content sharing, nanny sharing, farm sharing and even homeownership sharing.

Technological-driven mobility aside, millennials also have grown up in an age that promoted a fear of commitment. They were born to the highest divorce rates in American history. They also witnessed the most spectacular housing collapse in modern history.

The 2008 housing crisis delayed a whole generation from buying homes. Even as today’s modern homebuyers become more fiscally viable, their memories of witnessing parents, neighbors and relatives lose their homes are still fresh. The well-documented resistance to commitment among millennials has kept many potential, qualified modern homebuyers renting and, in a proverbial vicious cycle, high rents prevent these future buyers from saving enough to buy their own homes sooner.

The path ahead

Luckily, with advances in technology comes innovation — envisioned and developed via the professions that so many millennials are entering. Homebuying, too, has changed, driven by modern homebuyers’ desire for more self-reliance, self-empowerment, fairness and ease.

Most of all, modern homebuying has been driven by demand for flexibility and mobility that has delayed homebuying itself. To welcome the next generation into homeownership, homebuying has to evolve and adapt to how millennials live, instead of simply waiting for them to “grow up.” After all, many modern homebuyers share a millennial mindset, even if they don’t fit into that age group.

Today, the online real estate company Zillow is considered one of the most powerful players in the market. The online home-search and research site earned this position by empowering homebuyers and challenging the traditional reliance on real estate brokers and appraisers.

Companies like Quicken Loans and Rocket Mortgage are among a slate of new online players that are outpacing traditional big banks in mortgage production. These new, innovative players often adhere to the cultural markers that have shaped modern homebuyers — an insistence on transparency and a just world, community sharing of information and resources, and customization and flexibility to cater to the customer’s unique needs instead of the other way around.

The housing industry needs to make it easier for modern homebuyers to catch up financially so they can participate fully in the housing market. Many of them started late because of the numerous reasons outlined above. There already has been some movement on that front through the proliferation of new mortgage programs that help potential homebuyers get back in the game sooner — such as low downpayment, first-time homebuyer programs and government-aid programs at the national and local levels.

•  •  •

The modern homebuyer no longer automatically marries at age 25 and buys a home with a white-picket fence to live in for 40 years. What they want out of the homebuying process, too, must change. More simply put, to lure back the next generation of modern homebuyers, they have to be convinced of the value of homeownership in the context of their modern values.


 
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