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Millennial homebuyers are in ascendance

Data suggests that millennials, or people between the ages of 18 to 37, are now the largest class of active homebuyers. Joe Tyrrell, executive vice president for corporate strategy at Ellie Mae, discussed what millennial borrowers have been up to, when the next wave of millennial homebuyers will enter the market and why lenders should care about them. Ellie Mae, a California-based data-solutions provider, in 2016 launched its Millennial Tracker tool, which specifically monitors millennial borrowing patterns based on mortgages that flow through its platform.

Have you seen any change in the normal pattern for millennial age borrowers?

millennialtyrrellWhat has been different over that last 12 months is loan type. FHA [Federal Housing Administration] historically has been an area where a lot of millennials turn to, simply because there is a little bit more flexibility in FHA lending requirements than conventional [loans typically purchased by Fannie Mae and Freddie Mac]. Back in January 2017, we saw FHA at 36 percent of all loans being originated, and conventional around 61 percent. That has been pretty consistent for a while.

Those numbers started to change slightly in October and November [2017], but there was really a bigger change in December and into January [of this year]. So now, FHA represents 28 percent, and conventional is all the way up to 67 percent. That is a pretty significant jump when you look at just a short couple of months. What is interesting is that FICO scores have stayed relatively the same. Loan-to value [LTV] has stayed relatively the same. What you are seeing on the conventional side is newer loan programs with higher loan-to-value or lower requirements for downpayments starting to gain more traction among the millennial community.

According to the National Association of Realtors, millennials are the most active homebuyers in a comparison to other generation groups. Can we expect their importance to grow and how quickly?

What we really track is when do they start to get into that prime homebuying age. Between the ages of 29 to 32 is when you start to really see them getting engaged in homebuying. By the year 2021, there will be 24.9 million millennials that are in that age band. There is a bit of a  bubble coming our way from the millennials.

At this point, should there be more millennials buying homes?

Based on just the overall population of the millennials, I would say yes. It is such a large cohort. We also look at the average age of a primary borrower. That number has not gone down significantly. You would expect that as millennials come in en masse, that they would drive the overall primary borrower age down.  We are not seeing that yet. So yes, we would expect that to happen more dramatically, given the size of the population. But, as they [millennials] continue to age into that band where their family formations are taking place and they are less interested in living in the urban areas where they work, we expect that [their share of home-purchase market] will continue to grow.

Is there more that lenders could be doing to attract millennials?

There are two things. I really believe it starts, first and foremost, with getting millennials better educated with what is available to them now. Lenders are doing a lot, but the millennials are clearly not aware of all of the programs that they have available to them. That is an important first step.

If there is a rollback to aspects of [the Dodd-Frank Wall Street Reform and Consumer Protection Act] that allows smaller banks [greater flexibility to tailor loans so long as they are held in portfolio], that could open up some opportunities as well.

According to Realtors, the obstacles for millennials include student loan debt, low inventories of affordable homes for sale, high home prices and rising interest rates. Do you see these as big stumbling blocks that might suppress the numbers of millennial homebuyers?

If somebody is looking to buy a home, I don’t believe that interest rates will be a significant obstacle on their intent to purchase. It will be an obstacle on how much they can purchase.

When we surveyed millennials, we asked them what is preventing you from buying a home? No. 1 was, "I haven’t saved enough money." That indicates, in many cases, that they are not aware of some of the loan programs that are available. Another was that they were content with renting. It may be they haven’t gotten to that point where that family formation is taking place — or it has, but children haven’t come. So, they are continuing to remain mobile. The fourth [biggest obstacle] was around debt, just concerns around their ability to carry that debt burden. A lot of programs out there allow millennials to refinance their student debt to lower payments, to be able to create more cash flow. There again, there may not be as big an awareness [among millennials] about those programs.

Why do so many people care about what millennials are doing?

First and foremost, they are the biggest population cohort .... So, there are a lot of them. They are really driving the [mortgage] market. When you look at Baby Boomers and Gen Xers, you really have this phenomenon called "aging in place." Normally the Baby Boomers would want to downsize homes and move into condominiums or move into [a home with] lower maintenance, and that is just not happening at the rate that it used to. More boomers are aging in place. It is putting even more of an emphasis on the millennial population to drive more of the market. 


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