Mortgage Blog

Millennials and Mortgages

First Time Home Buyers

Seemingly not a day goes by that a major media outlet doesn't report on the significance and growing purchasing power of the mighty demographic: Millennials. The age cohort includes at least 80 million people with roughly $200 billion to spend, and companies are understandably doing everything possible to reach these new consumers.

The other story that has dominated real estate and mortgage news has been the state of mortgage rates, which have remained low (historically!) for some time now. Even first-time homebuying has increased in recent months. It would seem like this is a match made in heaven, right? Although millennials will undoubtedly one day be the dominant force in housing, Forbes columnist Beth Braverman provides four reasons why that hasn't happened quite yet.

1) Strict mortgage standards and stubborn debt. Braverman notes,  potential buyers used to have more wiggle room with their debt-to-income ratio. Some buyers are getting approved because lenders were able to take into account other factors that would help mitigate the high level of debt, like a large downpayment. In today's more highly regulated market, with lenders more cautious than ever, debt-to-income ratios are capped more strictly at 43%, meaning otherwise credit-worthy borrowers are facing a roadblock. Add to that the struggle recent college graduates are having finding high-income jobs, and it's easy to see why many millennials are not ready to jump in the housing market.

2) Competition and Cash. Real estate inventories are down in many parts of the country, meaning homes on the market are generating high levels of buyer competition. Unfortunately for many millennials and first-time buyers, they are finding out the meaning of the term "cash is king" as they are losing battles to all-cash buyers.

3) Delayed family formation. Even more than previous generations, millennials are waiting to purchase their first home until they are either married or otherwise attached. Not surprisingly, single, unmarried millennials are just not as interested in the commitment of a home purchase when rental options are available.

4) Rental options are available! Thanks to the housing crash, many former owner-occupied homes are now owned by investors who are renting them out instead. Additionally, the homebuilding industry has spent considerable energy and resources in the past few years building apartments and multi-family options that appeal to renters.