By Mike Corn
We keep hearing that Millennials can’t afford homes and would prefer to rent. In some ways this makes sense.
They were the group hardest hit by the market meltdown in 2008-10 because many graduated from college with huge amounts of student loan debt ($1.2 trillion according to the 2015 Elite Daily Millennial Study), just when the job market was at its lowest.
So, it’s no wonder that the U.S. Census Bureau records show only 36% of them own a home – the lowest percentage since 1982, when the federal government began tracking ownership by age group.
But the economy is improving and the job market is better today, so why are many Millennials still renting? Some are leery about buying because of the problems some homeowners experienced during the recession. Others are simply postponing their home-buying decision until later in life. Still others want to live in a city where home prices are too high for their budget.
While credit union home lenders can’t change the minds of Millennials who want to live in an exciting (but expensive) city or want to wait for personal reasons, we can reach out to those who want to buy a home by addressing three top challenges they face:
- Insufficient credit score or credit history. According to the August 2015 Fannie Mae National Housing Survey, more than 50% of Millennials listed this as a reason they don’t own a house. Offer seminars or webinars teaching steps on improving credit scores.
- Inability to afford the down payment or closing costs. Nearly 45% of Millennials responding to the Fannie Mae survey named this as a reason they were renting. Reach out to them by providing information on products tailored for first-time home buyers.
- Belief that renting is cheaper than buying. Often, when making this decision, Millennials simply compare the monthly mortgage payment to rent payments. Point out the tax advantages of homeownership, their home’s resale value, and that building equity is like “money in the bank.” HousingWire points out that Trulia’s annual comparison of home buying versus renting found that homeownership was 36% cheaper than renting on a national basis, based on September home prices in each of the country’s 100 biggest metropolitan areas. When adjusted for situations Millennials typically face (moving every five years instead of seven, and 10% down instead of 20%), buying was still 23% cheaper to buy than renting in 98 of 100 metro areas (Honolulu and San Jose were the exceptions).
For mortgage lenders, connecting with this group is paramount – after all, they’re not only the future, but they represent 79-million consumers. The Demand Institute reports 75% of young adults say owning a home is an important long-term goal, and 92% of those who don't own homes say they plan to buy in the next four years. Predictions are that 8.3 million Millennials will form households and spend $1.6 trillion on home purchases in the next five years.
Providing the information and guidance they need to become homeowners is fertile ground, which can yield a crop of engaged credit union members in the future.
Mike Corn is president/CEO of CU Realty Services, which helps credit unions across the nation increase their purchase mortgage business.