How mortgage brokers can reach millennial home buyers

by Denise Magtabog05 Nov 2019

Millennial home buyers have a plethora of problems and housing preferences, but property ownership is still possible for them.

Millennials are becoming homeowners much later in life than older generations at the same age. Factors like debt, student loans, market prices, and mortgage interest rates all contribute to millennial home buyers being able to afford properties. Learning about these challenges and opportunities are crucial in understanding exactly what they need from mortgage brokers.  

Acknowledge their specific needs and challenges
Student loan debt is not unique to this generation, but it is a problem faced by many of them. 

As the job market in the U.S. has gotten more competitive, millennials have sought higher education in order to have better career opportunities. Of course, many millennials were only able to attend college by taking out student loans. This led to students being in debt before they started their careers. According to realtor.com, student loan debt in America is almost twice the value of the U.S. housing market. This is a problem that affects close to 43 million Americans, 34% of which are millennials. Each borrower has a median of $34,000 worth of debt to pay off. 

In the U.S., the typical price for a 10% down payment for a home is $26,000. The total value of U.S. homes in the market is only $780 billion compared to the staggering $1.5 trillion in outstanding student debt. Millennial debt accounts for $498 billion of that number. 

The typical millennial with student loan debt has a balance of $33,000. That’s still more than the price of a down payment on a home. This problem leads to a delay in their homeownership, to the dismay of millennial home buyers.  

Due to these challenges, more millennials are opting to rent instead of pursuing homeownership. Principal economist at CoreLogic, Molly Boesel, says the trend of strong demand from younger millennials who prefer to rent rather than own homes is expected to continue. 

Although the millennial home buyer market is still viable, many young Americans are either choosing to (or have no choice but to) either rent or stay with their parents. Statistics from ValuePenguin.com show that homeowners under the age of 35 dropped from 12% to less than 10% over from 2009 to 2016. There was an upward trend in millennial homeownership in 2017, but the data still shows that 67% of millennial households were renters. 

These struggles faced by millennials are valid but not impossible to overcome. Millennials need guidance when it comes to handling their finances in relation to housing. Yes, renting can be more affordable in the short term, but paying rent every month leads to nothing. A mortgage broker knows that allocating your rent money to paying a mortgage instead can lead to better financial security. Paying a mortgage leads to homeownership while paying rent just leads to paying more rent.

Understand that their priorities are different from older generations
Traditional life milestones tend to be the same for millennials, only in a different order from how older Americans are accustomed. Compared to members of generations that came before them, millennials are marrying and having children later in life. The definition of security has changed for this generation. Many putting job security and career advancements before settling down and having a family. 

Research done by Zillow indicates that about 54% of millennials opt to live in cities with a higher potential for job opportunities. Their career being the priority, the survey found that almost half of millennials ages 25 to 34 only stay in their homes for two years of less. The average person above 50 typically stays in their homes for a decade or more. Many millennials who are constantly moving homes are renters. In a survey, half of millennial renters who moved the previous year said they have plans of moving again the following year. 

Though many younger people are opting to rent, many older millennials starting families are in the market for homes as they seek more stable housing conditions. Mortgage brokers need to ensure that this cohort is not being overlooked. Millennial home buyers are likely also first-time home buyers and will need more hand-holding than more experienced buyers.

Help them in their search for a better quality of life
George Ratiu, senior economist at realtor.com said that “Student debt is already impacting borrowers’ ability to buy a home, and education debt is expected to hamper consumers’ financial decisions for many years down the road.” This statement may be true, but it has already been many years down the road for many older millennials. Some of them have been out of college for more than 15 years. 

Millennial homeowners have now been contributing to the increase of homeownership in the U.S. According to Porch’s Millennial Home Buying Trend Report, millennial home buyers have purchased 34% of the homes sold in the U.S. over the previous year. In 2018, 43% of the mortgages taken out were by millennials. Seventy-four percent of millennials say that they plan to move in the next 10 years. Around 59% of these were homeowners.

Aside from millennials who have already achieved the dream of homeownership, many still aspire to own homes someday. With the youngest millennials already being 20 years of age in 2019, 75% of millennials aspire to buy their own properties within the next three years according to a survey done by CoreLogic. Older millennial home buyers prefer single-family homes in the suburbs while younger millennials below 30 prefer modern apartments in urban settings. 

Millennials are amazingly optimistic, with 79% of them believing they will become homeowners someday despite the average person’s outstanding student debt. This positivity isn’t without merit as millennials over 30 have already proven that it can be done. Half of millennials over 30 have bought a home in the last three years. Frank Martell, president and CEO of CoreLogic, said that these millennial home buyers are looking to move out of urban cities to live in places with more privacy and greenery like the suburbs.  

A statistic by Ellie Mae Millennial Tracker revealed that several millennials who refinance their loans continuously grew. The drop in interest rates spurred this increase in refinancing, with the rates falling to 4.059%. Joe Tyrell, COO of Ellie Mae, says that millennials are quickly taking advantage of these low rates despite some of them already having bought homes in the last three years. He also said that they are monitoring if this will also prompt millennials who are not homeowners to purchase properties. 

Mortgage brokers should be quick to cease these opportunities with millennial home buyers. A majority of millennials have already said that they plan to buy homes in the future. A broker can make that future sooner than the buyer expects by guiding them to the right product sooner, or introducing them to products that they didn’t know existed.

Find opportunity by recognizing the outliers
There is a group of millennials poised to be one of the richest generations in history, according to Charlie Young, president and CEO of Coldwell Banker Real Estate LLC. Many of these millennial millionaires can be found in California’s Silicon Valley, which is home to eight out of the 10 wealthiest zip codes in the country. From this data, some might that this rise of great wealth in this generation can be attributed to the boom of the tech industry. Now while there is evidence of moguls like Mark Zuckerberg comes to mind when thinking of millennials who made their money in tech, only about 15% of the millennial millionaires in Silicon Valley are business owners. 

Now, there are about 618,000 of these millennial millionaires in the US but that number is expected to increase. According to Codwell Banker Global Luxury partnered with WealthEngine, the predecessors of millennials are set to pass down $68 trillion to their millennial heirs in the coming decades. Many have called this “The Great Wealth Transfer”.

Ninety-four percent of the millennials who are already wealthy right now is worth between $1 million and almost $2.5 million. Of course, with the wealth transfer, this is expected to go higher. Among this sample of people, 92% have already purchased properties and 77% of them are still looking to improve their homes. 

With this amount of wealth, a person could afford to invest in multiple properties as places of residence and vacation or for renting out or flipping. Mortgage brokers could partner with this group of millennials to further grow their wealth wisely.

Millennials will always be an important market to mortgage brokers because many of them are just starting out their lives. They still dream of owning homes and many of the ones who already own homes dream of moving to better homes in nicer neighborhoods. Millennial home buyers have many desires and specificities when it comes to homeownership. At the same time, they also have many needs and challenges. With the amount of debts millennials have, they need smart mortgage advisors and mortgage brokers to guide them in making the right decisions and taking on the best loans.