Millennial borrowers, those 72 million individuals born between 1980 and the turn of the century, are now of the age that has traditionally been the time during which a generation begins to invest in acquiring a home. This should be good news, but it appears that the emergence of this generation as a driver of new home sales is just not happening. Why is that? Well, there are probably as many answers as there are members of the generation, but there are a few that seem to have credence.
This generation does not see homeownership as a positive or a meaningful way to spend their income. Having lived through the financial crisis caused by the collapse in housing and in many cases learning first-hand how a home that constitutes a major part of a family’s wealth can be lost almost over-night, they are not inclined to commit the same mistakes their parents did.
For members of this generation that are interested in buying, they have no desire to obtain one of the many suburban mini-mansions. Instead, they are more interested in securing a nice condo, more than likely in or close to a metropolitan area. These individuals are putting off families for the “fun” of being free of housekeeping, yard work and kiddy games. Because of this, many builders and Realtors are seeing the demand for condos increasing. Even Miami has started building more condominium units.
Another factor driving this generation away from home purchases is the overwhelming student debt they have. Schooling costs have skyrocketed and as a result, young professionals are leaving school with student loan debt in the hundreds of thousands of dollars. Regardless of the fact that starting salaries are increasing, these debts are quickly absorbing any disposable cash that they may have. As a result it is all too common to find that these individuals have moved back home just so they can more quickly pay off these debts. For those not going to college, pay rates in the lower economic bracket is rapidly losing the race to keep up with increasing costs.
On the flip side, this generation is also turned off by the laborious, paper-intensive and intrusive process of securing a mortgage. For the generation that grew up with computers and have driven the acceptance of “an app for that,” actually pulling paper together and completing an application is overwhelming. They expect to find a mortgage they want, answer a couple of questions and have an approval within minutes. After all, that is the way they do everything else, so why should a mortgage be any different?
Many lenders, reaching out to these potential borrowers, have been attempting to lure them in with more and more technology; obtaining lots of information through the Internet and giving “pre-approvals” in a matter of minutes. But one thing we must consider is the risk associated with this approach. Since we have seen first-hand what substituting partial or inaccurate data can do to loan performance, shouldn’t we be cautious about jumping headlong into this abbreviated underwriting analysis?
While this generation certainly is tech savvy and eager to embrace the joys of adulthood, they have also been criticized for expecting everything without putting in the effort that other generations have had to invest in their future. Employers repeatedly state that these individuals expect to receive regular promotions and pay raises just for doing their jobs. They are quick to quit a company when things don’t go their way and are not necessarily concerned when they don’t have another job to go to. It seems to me that the industry should be glad that the millennial generation is not yet looking for financing. Our industry may better off not providing loans to this generation until they mature sufficiently to understand that they have to pay them back.
About The Author
rjbWalzak Consulting, Inc. was founded and is led by Rebecca Walzak, a leader in operational risk management programs in all areas of the consumer lending industry. In addition to consulting experience in mortgage banking, student lending and other types of consumer lending, she has hands on practical experience in these organizations as well as having held numerous positions from top to bottom of the consumer lending industry over the past 25 years.