Millennials today make up a large and seemingly growing share of the mortgage market, as more young adults gain the financial power to make a home purchase. While there are significant forces at work that could continually impact their abilities to make a home purchase, they are nonetheless not being dissuaded from their goals, but have had to become more adaptable.
Today, millennials seem to be shying away from more expensive, busier housing markets and focusing on secondary large metro areas instead, according to the latest data from LendingTree. In February, the three cities where millennials made up the largest share of people submitting purchase mortgage applications were Des Moines, Iowa; Pittsburgh and Buffalo, respectively. In each of these metro regions, adults under the age of 35 made up at least 40.5 percent of the purchase loan market, versus just 32.5 percent for the country as a whole.
In addition, all of those major cities saw average purchase prices on those mortgage applications range from less than $114,100 in Buffalo to less than $141,800 in Des Moines, highlighting another issue many millennial homebuyers face, the report said. In general, young adults aren't targeting expensive homes, especially as mortgage rates and prices continue to rise.
On a national basis, the prices young adults may be willing or able to pay could be declining, according to the latest Ellie Mae Millennial Tracker. In April – the latest month for which data is available – the average loan amount sought on purchase mortgages slipped to less than $188,200, down from more than $192,000 just a month earlier.
This came as the average mortgage rate granted to those borrowers increased sharply to 4.73 percent, up 10 basis points from March and the highest level observed since the tracker was launched in January 2014. This despite the fact that the average credit score carried by these borrowers hovered above 720.
What's the impediment?
Millennials may not have the ability to be as flexible about buying more expensive homes because of the financial pressures they have largely faced as a demographic group, according to financial advice site DaveRamsey.com. Most likely have tens of thousands of dollars in outstanding student loan debt, as well as other financial obligations, and this is often cited as the biggest hurdle for young adults to be able to adequately build a sizable down payment.
At the same time, many of today's young adults may have relatively little take-home pay in comparison with previous generations which, when paired with high debt loads, can further depress a young adult's ability to save the tens of thousands of dollars often required to make a down payment.
When millennials are thinking of buying a home, they need to be realistic about what they will be able to afford and search for properties in markets where they will be comfortable both financially and in their lives generally. Working with experienced lending and real estate professionals could help them elucidate what they need to do to adequately prepare for the homebuying process.
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