Millennials Balk at Buying

/

I read a great article in “Real Estate and Lending Insider” about the significant shift in our market concerning first-time home-buyers (link to the article is below). Market conditions have improved greatly for home-buyers since 1984, yet first-time home-buyers are now more hesitant than ever to buy.

Check this out (2014 percentages based on data through May):

First-time buyers affordability index: 1984 – 64.9 | 2014 – 116
Interest rates: 1984 – 13.9% | 2014 – 4.1%
Mortgage payments as a share of income: 1984 – 28.2% | 2014 – 14.2%
Unemployment among 24-25 year olds: 1984 – 7.9% | 2014 – 6.9%
1st home-buyers as a share of the market: 1984 – 37% | 2014 – 27%

All the statistics indicate the market is more favorable for first-time home-buyers today than it was 30 years ago. Yet, the percentage of first-time buyers is down 10% from that point and even further when you consider that historically, the market has been closer to a 40% concentration rate of first-time buyers. Why are first-time home-buyers now so hesitant to buy? Couple of thoughts:

  • Student loan debt is bogging first-time buyers down (see my weekly update on 7/28/14 - https://www.facebook.com/MikeSmallingMortgageAdvisor )
  • They viewed the financial meltdown in 2006-09 from the front row – became the first group in a long time to realize that housing prices don’t always go up.
  • They like renting and the lifestyle that goes with it.
  • They are not ready to commit to the responsibility of home ownership.
  • Qualifying guidelines are more stringent for obtaining a loan than they’ve been in a long time.

So what do we do?

We have to start providing more education to this generation on the benefits of homeownership and how to prepare for it – and it probably starts in high school, before they become jaded by debt (particularly student loans). But therein lies the problem: those that need to hear the message are so young that they won’t be potential homeowners for at least a half a decade or more. So there isn’t any money to be made educating that group – at least not now. Let’s do it anyway. It will cure a lot of ills and give us a pipeline of customers down the road.

http://martinhladyniuk.com/2014/07/11/hes-the-top-u-s-mortgage-salesman-his-daughter-isnt-buying-it/

If you are ever interested in reading prior weekly emails, please visit my Facebook page. Mike Smalling Mortgage Advisor

The Week Ahead
The conflict in Ukraine will remain a primary focus this week. The biggest economic report will be Retail Sales on Wednesday. Retail Sales account for about 70% of economic activity. Before that, the JOLTS report, which measures job openings and labor turnover rates, will come out on Tuesday. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Friday, along with Industrial Production. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

The Week That Was
With a light slate of economic reports last week, the conflict in Ukraine had the greatest effect on mortgage rates. Shifting sentiment about the likelihood of escalation caused some market volatility during an otherwise quiet week. Mortgage rates ended the week a little lower.

On Tuesday, a Polish official suggested that Russia is massing troops on the border with Ukraine to prepare for an invasion. While there has been a lot of debate about the accuracy of this statement, just the suggestion was enough to worry investors. The concern centers around how the US and European nations would respond. Another round of sanctions would be expected. The level of uncertainty about the outcome of this conflict is very high.

Europe is still struggling to avoid another recession, and trade restrictions with Russia make this even more difficult. GDP growth in the euro zone has been just slightly positive for four quarters after several years of negative readings. Since slower global economic growth reduces future inflationary pressures, this has been favorable for mortgage rates.