The largest generation of prospective home buyers in the country, millennials, face a myriad of hurdles that lenders need to understand. Problems include huge student debt, stagnant wages, and Covid’s restrictions and exclusion.
Homeownership is far from easy, let alone reasonably affordable for millennials. This generation must make important decisions about where and how they can or want to live, which will ultimately change the definition of residential lending.
Detailed research by Legal and general, a UK-based insurance and asset management company, details the financial situation of millennials, attitudes and needs regarding home ownership in the United States. This gives important understanding with which banks and credit unions can adjust their approaches to tap into a huge base of potential customers.
The title of the study indicates its cautionary nature: “2021 US Millennials and home ownership is a distant dream for most.”
“The main message for the lender or banker in this report is that it is becoming increasingly difficult for the general millennials to make upfront payments and take ownership of their home,” says John Godfrey, director of corporate affairs, Legal & General. “Almost all of them still want to ultimately own real estate. So you have a large potential customer base, but in many cases it takes them a little longer to get to the point where they can do it. “
Why is it important:
The millennial market is too big to ignore. The creative efforts of lenders and developers, backed by a certain amount of luck and wealth transfers, can help accommodate more young people.
Even before the new wave of the delta Covid pandemic threatens a return to normalcy for consumers who have eagerly embraced, the first waves have already crushed homeownership prospects for many millennials. The table below shows this graphically.
“Affordability of housing is already a problem for [Millennials] in big cities and other desirable areas have become inaccessible to people between the ages of 30 and 30, many of whom have chosen to return to their hometowns, and in some cases even to their parents’ homes, ”said Nigel Wilson, CEO of Legal & General Group. “This is a social problem with significant ramifications: Millennials make up the largest working cohort, but many fail to climb the home ownership ladder.”
Times are tough if you’re under 40
The study, which is being published in several parts, divides the broad category of millennials into three distinct age subgroups with highly individualized, often different housing needs. These:
- Young millennials aged 25-29 who tend to seek high-paying jobs in big cities.
- Middle-aged millennials in their 30s and 34s who are starting families and thinking about moving to more accessible places.
- Mature millennials between the ages of 35 and 40 who have excelled in careers and family life and, in many cases, are still trying to figure out how to buy a home.
In a more normal situation, when people reach a certain age and start forming families, they stop being interested in life in a small place in the city and instead are interested in a large space outside the city. Godfrey notes that this is a transition point where they become a really good mortgage offer.
“This study confirms that for most young people, buying a home is becoming an increasingly elusive goal.”
– Nigel Wilson, Legal & General Division
However, millennials face formidable hurdles that are common to the generation as a whole. “This study confirms that for most young people, buying a home is becoming an increasingly elusive goal,” says Nigel Wilson, CEO of Legal & General. “The millennials we studied cited huge tuition and health care debts, as well as wage mismatches with living standards, as accelerators of this problem of generations of unaffordable housing. If you are under 40, you are part of a generation that needs access to a larger and wider supply of affordable housing than currently exists. ”
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Battle of generations
As mentioned, Covid has had a notable impact on millennial home ownership. Seven out of ten millennials surveyed agreed that this influenced their ideas of where they might live to some extent. “We suspect that with companies postponing return dates to the office and growing concerns and uncertainties about the Delta option, these numbers could increase,” the report said.
Covid once postponed millennial home ownership, and now with uncertainty about the Delta option growing, the delays seem to continue.
Millennials are not without resources. An earlier study of the US market by Legal & General found that family and friends of millennials supported $ 317 billion in real estate purchases across America in 2018, which equates to 1.2 million homes with an average of $ 39,000 in leases. or provided. This is the so-called “Mom and Dad Bank“At the time, I would have ranked 7th in the ranking of a home lender in the United States.
Paradoxically, older generations, at least in the short term, are actually starting to compete with millennials as baby boomers decide to cut back on the number of homes that the younger generation considers start-ups. Godfrey says these tensions are volatile and lenders should focus on bringing new buyers to the market. “There are so many older people who can be active in the market,” he says. “You need to keep the flow of new people in order to keep the flow of new businesses and focus on new customers.”
The freedom to live anywhere
Young millennials face a particular dilemma. More than a quarter of young millennials as a whole will move in search of work, even to large cities where house prices have skyrocketed. “This is the real Catch-22,” the message says. “Millennials, and especially those in the younger age group, often feel that they need to move to larger cities in order to find better paying jobs. Once they get there, the cost of even rental housing will become so huge that their plans to purchase a home are put on the back burner. “
However, 30% to 40% of mature millennials would prefer to move to a smaller city or neighborhood. In this group, 66% of those who want to move to smaller areas currently live in cities with more than half a million inhabitants. With Covid making work from home not only possible, but also desirable, such relocation has become more attractive and is fundamentally changing the relationship between city, suburb, city and rural life.
“The current model of the suburbs has so far relied on people living there, sleeping there, and then traveling to work,” says Godfrey. “If half of the population or a third of the population mostly work from home, the nature of the suburbs can change dramatically. So you need to have more housing there at the right price. “
“Accelerating and leveraging technology is like a turbocharger. You almost eliminate the need to hire people who work in the local market, and this creates a huge number of additional opportunities for people around where they want to live and where they want to raise their families. It is much more flexible than before. “
Don’t give up because of the arrested millennials
Changing the housing market to accommodate the potential millennial market should be gradual. “The solution clearly has to be multidimensional,” says Godfrey. “It all starts with increasing the supply of affordable housing and building more homes in general. But financial institutions also need to develop different paths to ownership, perhaps on a rent-and-buy model.
The fact remains, the report says, “Even though they may feel like they are climbing a steep hill, nine out of ten millennials still want to buy a home.”