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Financial Institutions Should Tweak Old Models and Simplify Processes
The housing market is at a crossroads. Monthly data from the usual housing industry giants point to up and down swings in the parameters of home prices, housing starts and sales. While the data can seem to paint both an unflattering and flattering picture all in the same month; one thing is constant in housing’s big data: Millennials are not buying homes in the numbers previous generations did.
This generation may be the first to say “meh” to the homeownership aspect of the American dream. Consider this: the percentage of sales to first-time home-buyers has dropped below 30 percent compared to averaging 40 percent. This shouldn’t be taken as Millennials do not ever want to become homeowners as the desire is there.
According to a survey conducted by the National Association of Realtors (NAR), 74 percent of Millennials think they’ll own a home before turning 35. The reasons Millennials are opting out include: mistrust in financial institutions based on what they witnessed during the housing crisis and fear of not qualifying for a mortgage because of student loan debt and a struggling job market. This makes it easier for this generation to be more comfortable living with their parents.
This generational dynamic is a major challenge for the mortgage industry. It’s not that Millennials are not as qualified financially or credit-wise; many are qualified and have the income to afford a mortgage. There’s simply a gap between who’s qualified to get a mortgage and who’s actually buying.
Engagement low with financial institutions
The mortgage industry is trying to engage this rapidly growing segment of the population and for good reason, one out of every three American adults will be a Millennial in 2020. Just five years later, they will make up 75 percent of the workforce. Millennials are a generation that grew up in a connected world. They embrace technology like no other generation and it’s within this dynamic that lies an opportunity for mortgage lenders to engage.
Mortgage lenders shouldn’t be too complacent or ‘business as usual’ in their approach because Millennials don’t trust financial institutions as much as other generations have. Recent surveys found that Millennials only trusted ‘most people’ at 19 percent and financial institutions were high on the untrustworthy list among companies. Much of this can be attributed to Millennials growing up with a hefty serving of news reports about the financial crisis which left them with the impression that banks get bailed-out, mortgage lenders helped to crash the economy through bad home-buying policies and that long-term employment is not a reality going forward.
Trust in a world of likes and follows
Mortgage lenders must understand how Millennials approach the concept of trust. When older generations need information, they reach out to a single expert, preferably someone who is older, who’ve climbed the ladder and is highly experienced. This is a hierarchical approach. Millennials don’t automatically do it this way. They build trust by getting small pieces of information from several sources, most of which are instantly available online. This is the ‘Yelp effect’ or you could say that Millennials ‘crowd-source’ their belief systems. But trust among this group can be taken away as quickly as it’s earned.
Multinational consulting company, Accenture’s white paper titled, “The Everyday Bank, A New Vision for the Digital Age”, the idea of the “everyday bank” is promoted. The report states: “For banks, this requires a shift in strategic focus from being a provider of financial products and services to being a provider of solutions. Banks cannot respond to threats simply by “being more digital”—closing down branches and rolling out better mobile and online banking services. To defend their position, they must learn to play a greater role not just at the moment of the financial transaction, but before and afterwards, as well”. While financial institutions mull changes to their DNA, Millennials express dissatisfaction with the mortgage application process, which can be confusing. This is widely shared through social media, deterring many potential Millennial buyers.
Recently, several tech start-ups are helping to make the home-buying process simpler and more transparent. Roostify, a web and mobile-based platform which digitizes the entire mortgage process from application to closing; just announced that HomeTown Lenders is using its platform to offer direct-from-Facebook mortgage applications. With this “Facebook” generation, 24/7 accessibility and responsiveness from the mortgage lender is expected and this will differentiate the successful companies from the less successful.
Do you think financial institutions should tweak their business culture and infrastructure before too many startups get a hold of Millennials’ trust?
National Mortgage News. “The Challenging Millennial Market” 26 August 2014. http://www.nationalmortgagenews.com/blogs/hearing/the-challenging-millennial-market-1042371-1.html
National Mortgage News. “Selling Mortgages to Millennials” 26 August 2014. http://www.nationalmortgagenews.com/blogs/hearing/selling-mortgages-to-millennials-1042414-1.html?utm_campaign=daily%20briefing-aug%2022%202014&utm_medium=email&utm_source=newsletter&ET=nationalmortgage%3Ae2973169%3A3924861a%3A&st=email
National Mortgage Professional. “First Home Buyers Are All Going Mobile” 26 August 2014. http://nationalmortgageprofessional.com/news48158/first-home-buyers-are-all-going-mobile