“Millennials the key to a stronger housing recovery.” That’s the headline on the press release of the Harvard Research Center’s latest “State of the Nation’s Housing” report for 2014. Unfortunately, unlocking that key is going to be very difficult for home sellers and mortgage lenders.
“Tight credit, still elevated unemployment, and mounting student loan debt among young
Americans are moderating growth and keeping millennials and other first-time homebuyers out of the market,” the Harvard report says. “Young Americans, saddled with higher-than-ever student loan debt and falling incomes, continue to live with their parents. Indeed, some 2.1 million more adults in their 20s lived with their parents last year, and student loan balances increased by $114 billion.”
“Still,” the report says hopefully, “given the sheer volume of young adults coming of age, the number of households in their 30s should increase by 2.7 million over the coming decade, which should boost demand for new housing. Ultimately, the large millennial generation will make their presence felt in the owner-occupied market,” says Daniel McCue, the research manager of the Joint Center.
I agree. The Millennial generation will, eventually, follow their parents and grandparents as homebuyers, although maybe not to the same extent, plus it’s going to take them a while longer than previous generations. But there are just too many tax and wealth-building advantages to homeownership to ignore.
Nevertheless, there are obstacles to preaching the gospel of homeownership to these prospective first-time homebuyers, and not just because of that student loan thing. Mortgage lenders will have to figure out a way to overcome them.
According to its latest consumer survey with millennial home buyers, Trulia, a leading online real estate marketplace, found that even though their finances are the biggest barrier to home ownership, many young people aren’t prepared to give up life’s little luxuries to help save for their down payment.
For example, nearly half (45%) said they wouldn’t give up their smartphones, 20% won’t give up cable television, and 15% would insist on keeping their Netflix subscriptions.
Instead, they plan to go to the Bank of Mom and Dad (or Grandma and Grandpa) for help. That compares to just 37% who would work a second job in order to save up.
The Trulia survey found another interesting factoid: Nearly half don’t know how much money they need for a down payment. Among the majority of those that do know, nearly two in five would put down less than 10% – or less than half of what many lenders today will demand.
That response indicates that one of the most important things mortgage lenders need in their marketing and advertising strategies in reaching these prospective first-time homebuyers is: Education. About the homebuying process, saving for a down payment, debt management, maintaining a high credit score, etc.
Reaching out to this next wave of first-time homebuyers then – and getting them to respond – will take completely different skills, products, communications methods and messages than other customers require if you are to compete successfully.
Here are some of the things you should think about before you approach this challenging, but critical, homebuying demographic:
>> Educate, don’t sell: Millennials have a particular aversion to being sold. Keep it subtle. Blatant advertisements are a big turnoff. Instead, teach instead of trying to sell. Many lenders have found a lot of success with first-time homebuyer seminars or by offering advisory services, such as the basics of home buying. But you’ll have to be patient. The payoff won’t be immediate, but that’s better than no payoff at all.
>> Evoke trust: The reason why Millennials don’t respond to advertising is because they don’t trust it, or the company or person sponsoring it. They put much more value on what others have to say about you than what you have to say about yourself. That’s why many companies have found success on social media sites like Facebook. Let your satisfied customers tell others how wonderful you are. But it doesn’t stop there. You have to rebuild that trust with each and every customer, including repeat customers.
>> Be flexible. More than previous generations, Millennials want to retain their flexibility, such as being able to move from job to job and city to city. That’s why renting is so attractive to many of them. They especially don’t want to be locked into a 30-year mortgage. You’ll need to come up with new loan products, such as more adjustable-rate loans, that don’t “feel” like long-term commitments. New loan products also need to take into consideration the special needs – that student loan thing again – this generation has.
Lenders will have to adapt to these new realities if they hope to succeed with this next generation of homebuyers. After all, they’re the only future we have.
About The Author
George Yacik has been a financial writer for more than 30 years. After working 12 years at The Bond Buyer and American Banker as a reporter and editor, he joined SMR Research Corp. as a vice president, where he was the lead research analyst and project leader for SMR’s studies on residential mortgages and home equity lending. Since 2008 he has been writing for a variety of mortgage-related and financial publications. George is based in Stratford, CT, and can be reached at firstname.lastname@example.org.