Millennials have long been called the next wave of homebuyers. Recent data indicates their time has come.
Millennials, or people between the ages of 19 and 37, were the most active generation of homebuyers in 2017, according to the National Association of Realtors (NAR).
Based on a recent annual survey of homebuyers, NAR estimated that 36 percent of all home sales involved millennials last year, up from 34 percent in the previous survey year, which reflected activity for parts of 2015 and 2016. In the most recent survey, NAR mailed a series of questions to homebuyers who purchased homes between July 2016 and June 2017.
Millennials have held the top home-purchasers spot in the NAR survey among generational groups for five consecutive years. They also now represent more than two-thirds of all first-time homebuyers, NAR says.
Other data seems to point to their growing dominance in the housing market.
According to the U.S. Census Bureau, the homeownership rate for buyers under the age of 35 gained 1.7 percentage points in 2017, and ended the year at 36 percent. Homeownership rates for other generation groups remained largely flat through the same period, although there was a modest uptick in rate for people over the age of 65 last year, the Census Bureau reported.
“It is sheer numbers,” said Jessica Lautz, NAR’s managing director of survey research and communication, during an interview. “Millennials are the largest generation. Their age group tops out at 37 right now. As they age, they are increasingly becoming established in their careers and starting their family, and they do want to purchase a home of their own.”
Although more millennials are buying homes, the numbers should be higher, NAR said. The homeownership rate for buyers under the age of 35 is 7 percentage points lower than its 2004 peak level of 43 percent.
“We would like it to be higher, but it hasn’t bounced back,” Lautz said. “Some of the reasons are because of housing affordability, low inventory and student loan debt.”
Lautz said these obstacles tend to depend on where the millennial is purchasing a home.
“Definitely in coastal areas, affordability and low inventory are going to be bigger hurdles to overcome,” she said. “In other areas, it could be wages and student loan debt playing a bigger role there.”
Millennials move away from FHA
Millennials are now also important to the mortgage market. There has been recent, notable change in millennial borrowing patterns, according to the technology solutions provider Ellie Mae, which tracks millennial trends. Lenders have been steering a greater percentage of millennial borrowers into conventional loans, and away from the Federal Housing Administration (FHA) program.
Among loans closed in January, 67 percent of the mortgages taken out by millennials were conventional loans and 28 percent were FHA-backed loans, Ellie reported, based on loans that flowed through its origination platform. In January 2017, the FHA share was at 36 percent and the conventional was around 61 percent, said Joe Tyrrell, Ellie’s executive vice president of corporate strategy.
“What you are seeing on the conventional side is newer loan programs with higher loan-to-value or lower requirements for downpayment starting to gain more traction among the millennial community,” Tyrrell said.
Fannie Mae and Freddie Mac have rolled out programs that enable borrowers to put just 3 percent down on a loan. Downpayment assistance programs also have proliferated around the country. In addition, Fannie and Freddie have eased their requirements to allow borrowers to carry more overall debt in relation to their income. Among these changes, Tyrrell said the looser debt-to-income ratio requirements have likely had biggest impact in attracting more millennial homebuyers.
Tyrrell said the big wave of millennial buyers has just started. Ellie Mae estimates that In 2021 nearly 25 million people will be between the ages of 29 to 32, the age when most people start thinking about buying a home.
“There is a bit of a bubble coming our way from the millennials,” Tyrrell said.