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Technology and Financing Updates May Help Attract More to the Market
Millennials are more enthusiastic about the housing market, according to recently released survey results from Zillow; but not as much about the prospect of changes in affordability and home values. The Zillow and Pulsenomics-sponsored Housing Confidence Index uses a 100-point scale where a reading above 50 indicates a positive outlook; this summer’s reading rose to 64.2 from January’s 63.7. Confidence is higher among renters, mostly due to increasing rent prices and home-buying conditions becoming more favorable. Younger renters had the highest in overall enthusiasm, with 82 percent, saying they were confident they’ll afford a home someday. This compares to 64 percent of Generation X and 48 percent baby boomer renters.Responding to Millennials attitudes about the market and home-buying, Zillow Chief Economist Stan Humphries said, “Heartening… because today’s renters by necessity are tomorrow’s buyers. Cynics might argue that these results represent no more than youthful exuberance, or perhaps some naïveté, but that’s missing the point. We need this generation to be confident and wanting to buy, regardless of the difficulties they face.”
Terry Loebs, founder of Pulsenomics said, “Although strong aspirations are no substitute for financial capacity or creditworthiness on a mortgage loan application, this feedback from millennial renters is significant because it confirms that they bear relatively few psychological scars from the housing bust, and because the attitudes of this generation will drive housing trends in the decades to come.”
Even with Millennials’ student loan debt and sluggish job prospects along with low inventory of affordable or starter homes makes the survey results beg the question: What are the main reasons Millennials are not buying homes?
Not having enough money for the down payment was the number one reason for Millennials renting according to the Federal Reserve’s 2013 report on economic well-being, which was issued in July 2014. Here enters the Mom and Dad Bank- Cash gifts from parents are becoming a bigger part of the changes that are helping to jumpstart a sluggish housing market and get more traction for the U.S. economy. According to data from the National Association of Realtors (NAR), in 2013, 27 percent of first-time home-buyers received a cash gift from relatives or friends for the down payment. This is the highest share since NAR began keeping records in 2009.
Anika Khan, a senior economist at Wells Fargo Securities LLC said, “Without them, the recovery’s not sustainable. Anything that gets more money into first-time buyers’ hands “just moves the housing recovery along,” she said.
Technology, or lack thereof can make the difference in growing Millennials’ interest and movement in the home-buying arena. With the home-buying process considered one of life’s more complicated and least transparent transactions, some vendors have stepped up to simplify the process and gain Millennials trust. Even the financing foundation of the mortgage industry has been brought up for question: the 30-year mortgage. Joseph Smith, monitor of the National Mortgage Settlement (NMS), challenged conference attendees at ABS East to create a mortgage product which allows borrowers to build up equity faster and own their homes sooner.
Smith told attendees, “Believe it or not, and this is worth the price of your admission right here, the 30-year mortgage is not a constitutional or human right. Is the 30-year mortgage the best product? A lot can happen to borrowers over those 30 years. It has the opportunity to put borrowers at risk for a very long time. We should build some additional products to help borrowers. I challenge you to do something better, to help borrowers own their houses faster.”
Smith posited that the typical 30-year fixed rate mortgage may not be the best type of loan for all borrowers today. He suggested that lenders consider the less-popular 15-year mortgage as an alternative. A new 15-year mortgage product was recently announced which would be marketed to moderate-income borrowers. This new loan product called the “Wealth Building Home Loan” would address the main reason that 15-year mortgages haven’t become a standard in this country.
Would a 15-year mortgage be more appealing to a generation which counts mobility and flexibility as one of its attributes?
In what may be a prophetic answer to what Millennials may want in one of their versions of the housing market, Smith said, “Let’s look forward and build a mortgage finance system that works for the 21st century. We need to cast aside the legacy systems and build for the future.”
Resources:
HousingWire. NMS Monitor: Is the 30-year mortgage the best product?
Bloomberg News. Mom-and-Dad Banks Step Up Aid to First-Time Home Buyers
DSNews. Housing Confidence Heats Up, But Expectations Remain Cool