As the mortgage industry forges ahead into a New Year, lenders are under immense pressures to remain profitable. Winter months are typically slow, making it even more critical for the industry to look beyond Millennials – the largest generation in history at just over 83 million, but one that still faces significant challenges that could prevent many from purchasing homes within the next several years. For example, record-high student loan debt is making it difficult for Millennials to save for a down payment. Even more concerning for this group’s future is that seriously delinquent education loans have increased more than 11 percent of the $1.19 trillion, likely due to a struggling (although recovering) job market.
To succeed in this environment, lenders should consider revamping their initiatives and focus more attention on other buying segments, including Gen X and Baby Boomers.
Gen X & Baby Boomers the key to profitability
While Millennials have monopolized much of lenders’ attention in recent years, Gen X (those ages 35-50) is proving to be the most stable generation. While a much smaller group, the National Association of Realtors (NAR) recently reported that Gen X is the largest home-selling demographic at 27 percent and with a medium income of just under $105,000. Additionally, this group is in the market for larger homes as they grow their families, making them an ideal target market.
Baby Boomers are also a market segment that should not be ignored. While the net worth of this generation is about half what it should be if the recession had never occurred, Baby Boomers still have, on average, more than $200,000 in home equity. Additionally, as this group retires and moves into smaller and less-expensive homes, many are looking to free up that equity. According to NAR, 81 percent of younger Baby Boomers (ages 50 to 59) are buying single family homes, and nearly 60 percent of Baby Boomers age 60 and older are purchasing single-family homes in senior-related housing communities. In fact, Baby Boomers are expected to spend $1.9 trillion or more on home purchases over the next five years.
Appealing to everyone…not just Millennials
While Millennials appear to be the market to go after, industry reports clearly show that Gen X and Baby Boomers are also viable market segments to increase growth – especially while Millennials overcome challenges related to student loan debt and a still-recovering job market. But to do so, lenders must implement innovative technology and new processes that appeal to all generations, and that speed underwriting and expedite document collection to further strengthen customer service.
Lenders must also recognize that each generation expects a customized experience. They expect to interact with them the way they want. For example, Millennials, the most tech-savvy generation in history, may prefer digital services and online communication or texts. Gen X, also tech-savvy, may have similar expectations but also want the option of in-person interactions with their lender. For Baby Boomers, traditional communication will likely be the method of choice.
In response, lenders must operate with a customer-centric approach that appeals to everyone – not just one market segment. This may include online portals that allow borrowers to more easily access loan documents as well as view real-time progress. Additionally, lenders should take advantage of modern technology to enable borrowers to electronically sign important loan documents. Not only can this significantly speed the process and streamline operations, but also result in excellent customer satisfaction rates.
While Millennials seem like a promising market segment, the wisest lenders will look beyond this generation to remain profitable in 2016. Millennials will continue to face challenges over the next several years, while Gen X and Baby Boomers present opportunities that lenders simply cannot ignore.
About The Author
Jeff McGuiness is Chief Sales Officer for Embrace Home Loans, an approved lender for FHA, VA and an approved seller servicer for FNMA, FHLMC and GNMA. Embrace Home Loans has remained a prominent leader in the industry, having provided hundreds of thousands of individuals and their families with mortgage loans, and now helping banks to provide home financing through its Affinity and Assisted outsourced mortgage solutions.