On Wednesday, the Ellie Mae Millennial Tracker report showed that loans to millennial borrowers for new home purchases continued to climb in January to 84 percent of closed loans. In December, 82 percent of closed loans were for new home purchases, up from 77 percent from August to November. The hottest housing markets for millennials were in the Southeast. The top markets by percentage of millennial loans closed included Enterprise, Alabama and Owensboro, Kentucky.
Across all loan types, it took millennials an average of 49 days to close on their loans, a day longer than in November and December. Purchases averaged 46 days and refinances averaged 58 days. Of the closed loans, FHA remained attractive among millennials at 35 percent of all loans closed in January, up from 34 percent in December. This is significantly higher than the Ellie Mae January Origination Insight Report data, which showed FHA loans represented 21 percent of closed loans in the month. However, FICO scores across all loan types fell slightly in January to an average of 724 from their peak of 726 from August through October. For purchases, the average FICO score was 748 for a conventional loan, 690 for an FHA loan and 734 for a VA loan.
Among millennials, the benefit of FHA loans is tied to FICO scores.
“It is not surprising to see millennial borrowers leverage FHA loans because they typically offer lower down payments and lower average FICO score requirements than conventional loans, said Joe Tyrrell, Ellie Mae’s EVP of Corporate Strategy. “As more millennials enter the market, we expect to see the popularity of FHA loans continue to increase.”
According to the Q2 2016 Zillow Housing Confidence Index (ZHCI),nearly 70 percent of millennials associate homeownership with the American Dream.
That dream is reflected in increases in closed loans and rising ownership, but trends are emerging that show the impact millennials are having in the real estate market.
Currently, 50 percent of millennial homeowners live in the suburbs, and the majority stay in the same city when they buy a home, revealing their home-buying preferences now that they are the largest generational group in the housing market. Of that 50 percent, 33 percent live in an urban neighborhood and just 20 percent live in a rural area.
“We're constantly learning about this young group of home buyers—we're finding that they are more similar to older generations than many thought. Their views on community and homeownership are pretty traditional, and they don't all fit the urban stereotype you might have in your head," Wacksman said.
However, millennials put off homebuying until recently, and it was difficult to know where they would actually purchase homes when they started buying, according to the Zillow Group Report.
“Millennials have delayed home buying more than earlier generations, but don't underestimate their impact on the housing market now that they're buying," said Jeremy Wacksman, Zillow Group CMO. "As members of this huge generation start moving into the next stage of life, expect the homeownership rate to tick up and suburbs to change to suit their urban tastes.”
The median age of a first-time home buyer is 33 years old, compared to 29 a generation ago. Millennials tend to skip the traditional starter home by choosing larger properties with higher prices. They pay a median price of $217,000 for a home that is about 1,800 square feet, similar in size to what older generations buy. They also share many preferences with their grandparents' generation—both choosing homes with shared community amenities and considering townhouses at higher rates than other generations.
Geographically, 64 percent of buyers who moved in the past year stayed in the same city and just 7 percent moved to a different state. Cities that boast a large number of this group include San Diego and Austin, Texas, with 30%. Los Angeles; San Antonio, Texas and Columbus, Ohio also have large millennial populations of over 25 percent.
The Ellie Mae Millennial Tracker is an interactive online tool that provides access to up-to-date demographic data about this new generation of homebuyers. The Millennial Tracker is a subset of the Origination Insight Report, which details aggregated, anonymized data pulled from Ellie Mae’s Encompass origination platform. Additional information regarding the Origination Insight Report can be found here.
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