Millennials are Riding the Low Mortgage Rate Wave
Millennials are having their day out in the sun, says Ellis Mae. And literally so, with the summer closing out. The age group ‘21-40’ have been using the low-mortgage rate environment to the tee. The Millennial Tracker discloses that the rate for 30-year mortgage has been 3.105% in August. This figure was 3.256% in July and 4.059% on the year-to-year chart.
The purchase loans have come down by 2% since July and 15% since last August. At 59%, they still make for a bulk of originations. Refinancing fortunes have picked since same-time-last-year’s 25% to this year’s 40%. On the month-to-month chart, the figure has also picked from July’s 38%.
Tightened FICO score may hamper mortgage approval process
The FICO score (average) has been 739 and not moving for the last three months. On the year-to-year chart, this figure was 728. This is quite natural as the lenders have squeezed credit norms, given the pandemic. It is expected that the credit scores required for qualification will remain high all through the Corona times. This may create difficulty for the millennials’ mortgage approval process. It is notable that despite the vigorous millennial activity, the average buying age has come up on the monthly chart. From 31.7% in July to 31.8% in August. This figure was 30.5% on the year-to-year chart.
Bifurcating the age groups for the millennial first time home buyer
Let’s bifurcate millennial data into age groups 21-29 and 30-40. The buying activity has been much more robust for the younger group. The elder group has been more inclined towards the conventional loans while the FHA loans have attracted the younger group more. It is not surprising that the average FICO score for the older group has been quite high at 748, compared to the younger group’s 727. After all, the younger group has had little time to pile up their credit scores.
The housing scene can pan out either way for the millennials
It will be important to watch how the current inventory shortage pans out. If the construction activity does not pick up due to the lumber and labor shortage, we are looking at much less homes built. Again, this may create a heavy-bidding atmosphere which can kill the hopes of a first time home buyer. At this hour, the mortgage rates are their big plus. So is their fearless attitude towards the pandemic. It is an added advantage that the new Corona-triggered work-from-home culture has been giving great suburban choices to the millennials.
On the other hand, the mortgage-heavy lenders are not willing to take risks with low-credit-score borrowers. The borrowers are nervous, considering what had happened during the Subprime crisis. If the qualification criteria tightens, the millennials may again feel left out. This said, any country, and more so America, looks to build itself on its young population and hence, the millennials will always be likely to find two doors opening where one closes.