Spring Buying Season & The Millennial Shift

Millennials are the first generation to come of age in the post-recession housing market in a relatively positive light. Yet the No. 1 barrier to entry for young, would-be homebuyers? Credit.

“The mortgage industry is poised to experience a monumental shift as more millennial homebuyers begin to enter the market,” said Joe Tyrrell, executive vice president of corporate strategy at Ellie Mae, a mortgage software and data company. “There are roughly 87 million would-be homebuyers in the millennial generation and 91 percent of them say they intend to own a home one day. Lenders must prepare today to meet their needs.”

The highest percentage of closed home loans for millennials are far and away in the Midwest, where home prices are lowest, according to the Ellie Mae tracker. The average FICO score for female loan applicants in March was 724 and for men, 727, both much higher than the national average credit score.

While millennials are waiting longer to get married and have children, factors that are the primary drivers of homeownership, the leading edge is now entering the housing market. Millennials are even starting to move to the suburbs, and in fact, last year marked a turning point, where urban centers reached “peak millennial,” according to a new study from Dowell Myers, a professor of urban planning and demography at the USC Price School of Public Policy. This brings up the reliance of FHA programs growing, especially from the millennial base.

Mortgage interest rates are still near historic lows, but home prices are rising far faster than incomes, negating much of the savings from these low rates. The 0.35 percentage point drop in interest rates since the start of 2016 would have saved the average homebuyer $44 per month, but home price increases have cut that to just $18 a month nationally and even more in major cities, according to Black Knight Financial Services.

This could be good news for home sellers. The number of consumers who told Fannie Mae
surveyors that they think it is currently a good time to sell a house soared in April. However, its impact on Fannie Mae’s Home Purchase Sentiment Index (HPSI) was muted by lower net responses to some other survey components–potentially levelling out the positive, expected improvements for the spring season.

Despite the spike in that specific line item response, Fannie Mae said overall consumer housing sentiment has remained generally flat–albeit improved some year over year. The HPSI is calculated from responses to six of the more than one hundred questions asked by the monthly NHS.

It’s important to note that the Good Time to Buy component of the index dipped to an all-time survey low, creating the narrowest gap on record between the Good Time to Buy and Good Time to Sell measures. In addition, although the net share of consumers reporting confidence about not losing their job rose 6%, the net share of consumers reporting that their income was significantly higher than it was 12 months ago stayed flat from the prior month, leaving some to speculate that growth in purchasing power was also flat. The component indicating expectations that home prices will increase rose 3 points and the one measuring expectation that mortgage rates would go down declined by 1.

“We can partially attribute the sizable gain in April in home selling optimism both to a correction for last month’s unexpected dip and to typical seasonal strength in housing activity in the spring and summer,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Even after accounting for these factors, continued tight housing supply has led to renewed strength in home price appreciation, making selling a home a more attractive prospect this year in particular. This improved sentiment could provide an extra boost of much-needed supply for the spring selling season.”

Are you thinking about buying a home this spring? Please contact me at (619) 857-7191! We can go over your loan options together and figure out how to save you money on your next purchase.