When it comes to real estate, Millennials have been the perpetual under-class. But recent evidence suggests this cohort may be finally settling down and buying homes.
For Millennials, the housing recovery has been a double-edged sword. On the one hand, young people have greater access to jobs than at any other time since the financial crisis. At the same time, these very conditions have raised demand for real estate and made affordability a key challenge for low-deposit homeowners.
However, there appears to be evidence that Millennials are finally settling down and moving into homes. For starters, Millennial homebuyers in February closed loans at the fastest pace in nearly a year, according to a new report by fin-tech mortgage processor Ellie Mae.
In February, time to close all loans for Millennial borrowers dropped to 44 days. That was the lowest since March 2016. The average time to close a purchase loan for Millennials dropped to 42 days in February from 46 the previous month.
Ellie defines Millennials as anyone born between 1980 and 1999.
This is an encouraging sign for the mortgage industry, which has yet to experience the long-anticipated shift to more Millennial buyers. Since the recession, Millennials have become a generation of renters. Bogged down by crippling student loans, labor mismatch and underemployment, young people have lacked both the appetite and the financial status to buy homes. It’s therefore no surprise that youth have been unable to capitalize on a decade of record-low interest rates.
Despite the stereotype of the low-income, financially insecure generation, Millennials could flood the market in the coming years. By 2021, an estimated 17 million first-time homebuyers are projected to enter the market, according to TransUnion. Millennials will make up a large share of that demand.
In fact, TransUnion figures suggest young buyers are already entering the market, although their numbers are slipping below the surface. By the end of 2015, 60% of first-time homebuyers were between ages 20 and 39.
Ellie Mae’s latest report did indicate an important trend with respect to the Millennial homebuyer: they embrace automation.
“Purchase loans are increasing, indicating that Millennials are continuing to enter the first-time homebuyer market,” said Joe Tyrrell, an executive VP for Ellie Mae. “In addition, we saw time to close decrease from 49 days in January to 44 days in February, which indicates that our lenders are seeing more efficiency as they embrace mortgage automation.”
Mortgage automation comes under the wide umbrella of fintech, a phenomenon that is transforming the financial services industry. Until recently, the mortgage market was largely immune to the fintech disruption, but that is quickly changing as demand for automated solutions continues to rise. You can read more about fintech and the future of U.S. mortgage lending here.
Ellie’s hottest Millennial markets appear to be suburban regions like Odessa, Midland and Beaumont-Port Arthur (all in Texas). Zillow, an online real estate database, confirmed those trends. Realtor.com note that cities like Chicago also have a large presence of Millennial buyers.
Overall, Millennials own a much smaller share of the real estate pie than other generations. Though the generation certainly has the numbers to catch up, its performance in the jobs market will likely dictate its success on the homebuying front.