Mortgage Update

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There’s an interesting thing happening in our housing economy right now. The next generation of homeowners — which should be the largest cohort in housing history — just isn’t buying homes as fast as they should.
Millennials, those young adults in their 20s through mid 30s, are the biggest demographic in the housing market today. They are buying. Don’t forget that. They just aren’t buying like their parents. They’re forming households slower. Some rent longer. Some struggle to become independent. Altogether, this generation has a homeownership rate about 3 percentage points lower than previous groups of young adults.
There are real economic data behind these trends. Here’s a few interesting data points that will help you better understand this group of borrowers:

  • Millennials aren’t working like previous generations. A lower share of young adults are working today compared to the year 2000. The male labor force participation rate has dropped to 88.8 percent from 93.4 percent. Females have dropped to 74.5 percent from 76.1.
  • Student loan debt is troubling. Americans owe more than $1.2 trillion in student debt, and much of that is owed by Millennials. One recent survey revealed 63 percent of these young adults have more than $10,000 in student debt.
  • This combination of lower employment and higher debt, combined with a societal shift to marriage and children later in life, have slowed the pace of household formations. About 15 percent of young adults age 25-34 still live with their parents today, compared to 10 percent of that age group in the year 2000.
  • Housing costs are higher today, especially compared to wages. House prices, adjusted for inflation, have increased 29 percent since 2000, but real incomes are only up about 1 percent, according to Freddie Mac research. Freddie Mac estimates almost 50 percent of the homeownership gap in this generation is caused by high housing costs. About 700,000 young adults did not buy a home between 2000 and 2016 because of increases in inflation-adjusted home prices and rents.

There are also psychological differences for this generation, which came of age in the middle of the Great Recession. My colleague, Movement’s Chief Commercial Officer Michelle Donnelly, explains this well in her recent blog post.
“Millennials, those roughly age 17 to 37, want to own homes, but most of their experience has shown homeownership to be difficult, expensive and even threatening to their well-being. That stands in stark contrast to other products and services, which have all become easier and more affordable to obtain over their young lives,” she writes.
“Many millennials watched their parents lose jobs, homes and wealth in the 2008 financial crash. In their college and high school years, most millennials witnessed first hand one of the ugliest periods in American housing history. This helps explain why many have delayed ownership.”
As mortgage professionals, it’s important to understand these economic and psychological reasons influencing this generation of homebuyers so we can more effectively help them overcome the obstacles.
I recommend reading this excellent research report from Freddie Mac if you’d like to dig in deeper.
Economic news this week
The markets had little new economic data to digest this week. Overall, data continues to point to an economy that is heating up. Core retail sales and industrial production numbers both rebounded in July, signaling economic strength.
The soft spot, once again, appeared in the housing starts report. July housing starts disappointed investors, with starts only increasing 0.9 percent last month. Analysts expected a 7 percent bump. The result points to continued soft spots in the home construction market.
The 10 Year US Treasury yield remained in slightly lower territory, below 2.9 percent again this week, after touching 3 percent earlier in the month.
Next week’s release of the latest Federal Reserve Open Market Committee meeting minutes will give investors insight into the central bank’s next moves.

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ABOUT THE AUTHOR:
GREG RICHARDSON – EVP OF CAPITAL MARKETS

Greg Richardson is Movement’s EVP of Capital Markets and a contributing author to the Movement Blog. His weekly market update is a must-read commentary on financial markets, the mortgage industry and interest rates. Greg is an industry veteran who knows how to read the financial tea leaves and make complex industry data easy for loan officers, real estate agents and homebuyers to understand.