The biggest barrier to entry for young, would-be homeowners is credit. Millennials find themselves in a difficult situation as the first generation to enter the post-crash housing market.

As more and more Millennials homebuyers enter the market, the mortgage industry will experience an enormous shift, explains Joe Tyrrell, executive VP of corporate strategy at Ellie Mae. There are 87 million potential homebuyers in the millennial generation. 91% of them intend to own a home someday, and lenders need to prepare to meet those needs, he says.

Cultural Shifts

A few shifts in cultural norms are also affecting the marketplace. First, Millennials are waiting longer to get married and have kids, both primary factors driving homeownership. Second, more Millennials are starting to move to the suburbs. Last year marked a turning point, according to a study by Dowell Myers, an urban planning and demography professor at the USC Price School of Public Policy. After a decade of growing millennial concentration in urban centers, the trend of downtown living has peaked and is now in decline. Myers calls it a dramatic human interest story with huge implications for real estate markets and investments.

The popularity of single-family suburban rentals is up, and availability is abundant, but since the majority of Millennials eventually want to buy, mortgages will be in demand.

Tracking Millennial Loans

According to Ellie Mae?s Millennial Tracker, over a third of home loans to Millennials since 2014 were Federal Housing Administration (FHA) loans insured by the federal government. That share is larger than the 22% overall mortgage volume market share commanded by the FHA. Cash-strapped young homebuyers enjoy the small 3.5% down payment, but it comes with a price: mortgage insurance premiums. The additional costs, along with higher credit requirements, continue to keep young buyers out of the market.

Household formation is growing, but owner-occupied units make up only one-third of new households while two-thirds are renters. According to the U.S. Census, the homeownership rate is down to 63.5, just north of its 50-year low.

Since the housing crash, government regulators have kept credit conditions tight. The current situation could cause regulators to reassess the balance between consumer protection and homeownership opportunity. The Department of Justice will likely continue to pressure loan originators, and the FHA could respond by cutting premiums.

Low Mortgage Rates vs. Home Prices

Mortgage rates hover around record lows, but high home prices, rising faster than incomes, eat away much of those savings. The 0.35% drop in interest rates at the start of 2016 would save the average buyer $44 each month, but elevated home prices have cut that down to $18, and even lower in major cities.

Title and Closing Services: Acuity National Real Estate Solutions

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