Millennial Homebuyers Exercised Their Purchase Power

Millennial homebuyers across the country exercised their purchase power in April as competition for limited housing inventory continued. Eighty-nine percent (89 percent) of mortgage loans made to Millennial borrowers during the month were for new home purchases, up one percentage point from the month prior, and the highest percentage since May 2017, according to the latest Ellie Mae Millennial Tracker.

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Interest rates also continued to rise in April to 4.73 percent, on average, up from 4.63 percent the month prior. This is the highest interest rate recorded since Ellie Mae began tracking Millennial loan data in January 2014.

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As interest rates crept up, average loan amounts to Millennials fell. The average amount was $194,300 in February, $192,055 in March and $188,171 in April.

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“Most Millennials are buying a house because there are major changes happening in their lives such as starting a family, getting a new job, or because they’ve decided that they want to build equity and stop renting,” said Joe Tyrrell, executive vice president of corporate strategy for Ellie Mae. “We believe Millennial home purchases will continue to climb this summer and while interest rates may slightly impact the size of homes borrowers can get for their money, we don’t foresee it impacting their desire to buy.”

Overall, conventional loans represented 67 percent of all closed loans to Millennial borrowers, while FHA loans held steady at 29 percent from the previous month. VA purchase loans for Millennial borrowers represented 79 percent of all VA closed loans in April, steady from the month prior, and up from 66 percent in February.

The time it took for Millennial homebuyers to close a loan remained flat month-over-month. Purchase loans took an average of 39 days to close and refinance loans took an average of 44 days. FHA purchase loans took an average of 40 days to close, compared to 41 days in March. VA purchase loans averaged 49 days-to-close, compared to 45 days the month prior.

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Let’s Get Perspective

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Last year one of the big stories was that rates are going up. Why was this a big story? Because with rising rates, refinance activity will slow. With refinances slowing, that means that lenders will have to work harder to get more purchase money in the door. How much harder will lenders have to work? That depends.

“Mortgage rates have settled over the last few days in January, as we’re in-between market-moving events,” said vice president Keith Gumbinger. “The soft December employment report is behind us; the next Fed meeting, where we may or may not get another cut in Treasury and MBS purchases is coming up. Investors are watching the incoming data closely for signals that the Fed will or won’t make a move, so interest rates are holding fairly steady at the moment.”

The Federal Reserve trimmed QE purchases by $10 billion at its December meeting, and outgoing Fed Chairman Ben Bernanke left a strong impression that the Fed would like to reduce purchases of MBS and Treasuries at a like amount over the next seven Fed meetings. However, the Fed has noted that the decision to do so is dependent upon whether the economy is performing satisfactorily, that the risks to inflation aren’t rising, and perhaps most important, that the program is still having the desired impact. With interest rates already well off their bottoms, it just may be that the program is no longer generating the economic heat that it once was, and there may not be much additional upward impact on mortgage rates if the taper continues at a measured pace.

“The Fed’s QE program certainly provided key and needed support for the housing markets, fostering sales, firming prices and reducing the number of underwater homeowners,” adds Gumbinger. “However, the economy may no longer need as much of this unusual support. Aside from refinancing, the housing market has done fairly well in the last half of 2013, even with mortgage rates a full percentage point or more above last May’s lows.”

So, let’s take a deep breadth and put things into perspective. Rates are going to rise. Refinance activity is going to lessen. Purchase business lenders will be successful. All of this is just our current and future reality. What confuses me is why this intimidates some lenders. Is it that they forgot how to do purchase loans? Of course not, even lenders that were heavy in refinances did some purchase lending. Doing purchase loans may not be as quick and easy as doing a refinance, but quick and easy isn’t going to work anymore. As the old saying goes, slow and steady wins the race.

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