Are Millennials Mortgage-Ready?

Published: October 19, 2016 by Kerry Rivera

blog-post-house-02Much has been written about Millennials over the past few years, and many continue to speculate on how this now largest living generation will live, age and ultimately change the world.

Will they still aspire to achieve the “American Dream” of education, home and raising a family?

Do they wish for something different?

Or has the “Dream” simply been delayed with so many individuals saddled with record-high student loan debt?

According to a recent study by Pew, for the first time in more than 130 years, adults ages 18 to 34 were slightly more likely to be living in their parents’ home than they were to be living with a spouse or partner in their own household. It’s no secret the median age of first marriage has risen steadily for decades. In fact, a growing share of young adults may be eschewing marriage altogether.

Layer on the story that about half of young college graduates between the ages of 22 and 27 are said to be “underemployed”—working in a job that hasn’t historically required a college degree – and it’s clear if nothing else that the “American Dream” for many Millennials has been delayed.

So what does this all mean for the world of homeownership?

While some experts warn the homeownership rate will continue to decrease, others – like Freddie Mac – believe that sentiment is overly pessimistic.

Freddie Mac Chief Economist Sean Becketti says, “The income and education gaps that are responsible for some of the differences may be narrowed or eliminated as the U.S. becomes a ‘majority minority’ country.”

Mortgage interest rates are still near historic lows, but home prices are rising far faster than incomes, negating much of the savings from these low rates.

Experian has taken the question a step further, diving into not just “Do Millennials want to buy homes” but “Can Millennials buy homes?”

Using mortgage readiness underwriting criteria, the bureau took a large consumer sample and assessed Millennial mortgage readiness. Experian then worked with Freddie Mac to identify where these “ready” individuals had the best chance of finding homes.

The two factors that had the strongest correlation on homeownership were income and being married. From a credit perspective, 33 percent of the sample had strong or moderate credit, while 50 percent had weak credit.

While the 50 percent figure is startling, it is important to note 40 percent of that grouping consisted of individuals aged 18 to 26. They simply haven’t had enough time to build up their credit. Second, of the weak group, 31 percent were “near-moderate,” meaning their VantageScore is 601 to 660, so they are close to reaching a “ready” status.

Overall, student debt and home price had a negative correlation on homeownership.

In regards to regions, Millennials are most likely to live in places where they can make money, so urban hubs like Los Angeles, San Francisco, Chicago, Dallas, Houston, Boston, New York and DC currently serve as basecamp for this group.

Still, when you factor in affordability, findings revealed the Greater New York, Houston and Miami areas would be good areas for sourcing Millennials who are mortgage ready and matching them to affordable inventory.

Complete research findings can be accessed in the Experian-Freddie Mac co-hosted webinar, but overall signs indicate Millennials are increasingly becoming “mortgage ready” as they age, and will soon want to own their slice of the “American Dream.”

Expect the Millennial homeownership rate of 34 percent to creep higher in the years to come. Brokers, lenders and realtors get ready.

Related Posts

Explore key takeaways and highlights from three Vision 2024 sessions focused on housing topics.

Published: June 20, 2024 by Scott Hamlin

As more consumers lean towards adaptable and efficient vehicles that fit their everyday lifestyle, it’s no surprise to see...

Published: June 18, 2024 by Kirsten Von Busch

Mortgage lenders who connect with Gen Y and Z where they are will be better positioned to serve this demographic and grow their business.

Published: April 17, 2024 by Scott Hamlin

Subscribe to our blog

Enter your name and email for the latest updates.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Subscribe to our Experian Insights blog

Don't miss out on the latest industry trends and insights!