March 4, 2016
Social observers have reached stunning conclusions about Millennials, the approximately 80 million Americans born between 1980 and 2000. The biggest potential group of homebuyers in the market (32%), Millennials aren’t embracing homeownership (or mortgage debt) eagerly.
The US homeownership rate is at a 22-year low and plummeting for first-time buyers. Should we be worried?
The experts characterize Millennials as overburdened with debt (mostly student loans) and more likely to rent than buy. They don’t trust big banks or the establishment and favor a sharing economy. They handle their finances digitally and view money management as a chore. They cherish speed and convenience, and don’t have patience for the mortgage process.
Many Millennials spend money on experiences rather than things, prioritizing passion over paychecks. They avoid obligations they can’t get out of quickly and easily, and are delaying life decisions, including marriage and children.
Those with personal experience of the housing and foreclosure crisis don’t want to find themselves in similar situations.
Millennials grew up in the digital age and won’t participate in one-way or one-sided transactions, or passively be told what to do. They’re less influenced by so-called experts than by their peers — if their friends avoid financial commitments, so do they. They’re always connected, which helps them find tech-based, social-media-prominent lenders (and vice versa).
Finally, many Millennials don’t know if they qualify for a mortgage and don’t understand the home financing process or its costs. Some don’t buy into the so-called American Dream, or view homeownership as essential to that dream.
Traditional arguments for homeownership, on the other hand, can be summed up briefly: Renting is (or is getting to be) as expensive as owning. Homeownership builds wealth. Homeowners establish community ties. Homeownership strengthens communities and encourages civic engagement.
Some data suggest Millennials do want to own homes, but much of it comes from housing and real estate providers with an economic stake in the outcome.
What should mortgage lenders make of these “facts” about Millennials? And what do they mean for the larger economy?
If Millennials don’t take out mortgages like their parents and grandparents did, the economic fallout will include home builders and the construction trades, realtors, mortgage origination and servicing companies, title and property insurers, appraisers, abstractors, surveyors, home warranty companies, hardware and furniture stores, settlement companies, lawyers, paralegals, doc prep companies, escrow agents, government and private compliance regulators (and their policy makers and examiners), secondary market agencies, and even the auto industry (because you can park 2 or 3 cars in a driveway, but usually pay for each space in an underground apartment garage). And the parents and grandparents of Millennials are going to need buyers for their homes when they downsize to apartments or need assisted living.
There’s a lot riding on whether Millennials choose homeownership.
I was a mortgage finance lawyer during the mortgage boom years from the 1980s through the early days of the housing and mortgage crisis. Back then, borrowers were king and lenders fought vigorously for market share, using all the tools they had or could create — nontraditional loans, flexible underwriting, and new technologies. WaMu’s marketing slogan, “The Power of Yes,” perfectly captured the sentiment of that heady time.
All that changed in 2008. The financial crisis fueled doubts about the rationality of long-term debt in an economy where incomes were stagnating and jobs and job security are anything but long-term. And almost a decade’s dismal returns on savings called some to question whether saving is a sensible financial strategy. Disregarding these doubts, most baby boomers (and banks) assume the next generation wants the same things we wanted — homes we own, community roots, established and orderly havens for ourselves and our families, and eventually, a mortgage-burning to launch our golden years of leisure and laughter.
It may be time to reconsider whether Millennials even want mortgages. It looks like a problem for the rest of us if they don’t.
Titles by Andrea Lee Negroni
- Residential Mortgage Lending: State Regulation ManualMid-Atlantic
- Residential Mortgage Lending: State Regulation ManualNorth Central
- Residential Mortgage Lending: State Regulation ManualNorth Eastern
- Residential Mortgage Lending: State Regulation ManualSouth Central
- Residential Mortgage Lending: State Regulation ManualSouth Eastern
- Residential Mortgage Lending: State Regulation Manual—West