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   ARTICLE   |   From Scotsman Guide Residential Edition   |   August 2011

Why Generation Y Matters

The millennials represent your future business. Here’s what you should know

Why Generation Y Matters

Sustainability in business involves more than environmental sensibility. It also requires predicting developing trends accurately and positioning your business ahead of wide-scale market developments. Mortgage originators seeking sustainable pipelines in the years ahead must pay attention to Generation Y.

Loosely speaking, members of Generation Y are between 12 and 33 years old. By and large, this group of consumers will propel the entry-level homebuying market for the next two decades. The emergence of Gen Y already has proven a driving force with long-term implications for the residential mortgage industry.

The members of Gen Y — also known as the echo boomers and millennials — were raised with the Internet, cellphones and text messages. They include the likes of technology millionaires who already have made more money than most people will earn in their entire careers.

Although it’s difficult to define an exact age range for Gen Y, the group roughly includes people born in the final two decades of the 20th century. Depending on who you count, there are between 60 million and 81 million members of the generation in the U.S. According to one study, the collective income of Generation Y in the U.S. could reach $2.3 trillion by 2013 and $8.3 trillion by 2025.

Think about that.

Then ask yourself this question: Will I still be in the mortgage business 14 years from now? If you answered yes, you better get hip to Gen Y, like, yesterday.

Homes and loans

Generation Y homebuyers are entering the housing market in increasing numbers. They usually seek entry-level homes. Some seek new homes and some seek existing homes. Either way, most of these buyers want safe and sustainable financing solutions. They’ve seen the news of the past four years, and they often shy away from loan products they believe contain too much risk.

At the same time, Gen Y buyers often consider distressed properties and the discounted prices that accompany them too good to refuse.

Although few differences exist between financing new and existing homes, mortgage originators should know the special circumstances often surrounding distressed-property purchase transactions, including longer closing times and often-arduous negotiations.

Portfolio lenders often will accept irregular property types. Higher interest rates and lower loan-to-value ratios (LTVs), however, present typical drawbacks.

Many Gen Y buyers will qualify for conventional loans. Those with high-paying jobs in the technology industry and other in-demand sectors could become your best customers.

Others will seek financing programs offered by the U.S. Department of Veterans Affairs (VA) and other government entities. Expect an influx in VA buyers as young military personnel continue to return from duty overseas.

For VA buyers and those looking to tap Federal Housing Administration (FHA) loans, low-downpayment and high-LTV standards are often a huge draw. Another big attraction for FHA purchasers is the ability of parents or other relatives to contribute to the downpayment.

Technology demands

Members of Generation Y demand tech-savvy solutions to almost everything. They are often intelligent, articulate, detailed and armed with marketplace sophistication gained quickly via Web searches and social media inquiries. Their intuitive use of social media and Internet services for market research, comparison and analysis often gives them a distinct advantage when it comes to making minor purchases. Imagine how well they put those skills to use when it comes to buying a home.

It’s common for Gen Y buyers to arrive at a mortgage office or for-sale property with a bevy of spreadsheets from various online services that provide detailed information on communities, neighborhoods, comparable properties and amenities. This level of research can impress and intimidate mortgage professionals.

The first step toward building successful relationships with Gen Y buyers is to communicate willingly and enthusiastically via text messages and e-mail. For example, e-mailing a direct link to a comparative market analysis will help establish your expertise and willingness to share information in ways easily accessible via laptops and handheld devices.

Because of their market savvy, Gen Y buyers typically seek value and quality. They’re often more concerned with price per square foot than total square footage. In other words, unlike their parents, they see few benefits to huge homes with rarely used formal rooms.

On the other hand, location and convenience are crucial. Gen Y buyers often focus on community profiles and want restaurants, shopping, gyms, parks, libraries and public services close to home. Some Gen Y buyers already pay careful attention to the neighborhood schools, as well.

Housing cycles

Although many members of Gen Y have reached their prime years for homebuying, the rate of household formation has slowed dramatically. This suggests the recession and ongoing economic struggles have forced many members of Gen Y to live with their parents longer than they would like.

The traditional housing cycle, however, will inevitably return. That cycle can be broken in to three stages:

  1. Receding/declining
  2. Stabilizing/absorption
  3. Appreciation/expansion

The key to each new cycle is a base of entry-level buyers who create move-up potential and market momentum. Baby boomers fueled home sales in the 1970s and 1980s. Generation X powered expansion from the 1990s through 2006. Now it’s Gen Y’s turn to provide the market stabilization and absorption that will lead to appreciation and expansion.

Though some members of Gen Y will choose to be lifetime renters, the advantages of homeownership will eventually win over many. When they do, mortgage professionals who meet Gen Y’s demands — including sustainable financing and technology-based communications — stand to profit.


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