The Great Recession and affordability challenges are discouraging 25- to 40-year-olds from buying a home.
By Jeff Lazerson | email@example.com | MortgageGrader.com | October 29, 2021
Sometimes, timing is everything.
When the 2007 Great Recession housing meltdown and its five-year aftermath gripped America and the globe, millennials (those born from 1981 through 1996) were somewhere between pre-teens and young adults.
No doubt, many millennials bore the Great Recessions’ emotional scars by watching their families or neighbors suffer the loss of their shelter. They witnessed the humiliation their parents suffered from getting thrown out of the family sanctuary through a short-sale or foreclosure.
And then, the family’s nest egg and all their home equity evaporated before their eyes.
How long after home values stabilized did it take for millennials to feel safe enough to even consider the shelter and investment idea named homeownership?
The average millennial homeownership rate was 43% in 2019, which was 22% below the overall national rate, according to Freddie Mac’s 2021 Millennials and Housing: Homeownership Demographic Research.
Earlier this month, financial services firm Legal & General released part three of its housing study: U.S. Millennials and Home Ownership — A Distant Dream for Most.
A survey of 900 non-owner millennials conducted last spring shows plenty of millennials are discouraged about the prospects of homeownership. A snapshot of some of the findings:
“This study confirms that for most young adults, buying a home is an increasingly unattainable goal,” said Legal & General Group Chief Executive Nigel Wilson. “Millennials we studied cited crushing student and medical debt and the failure of wages to keep up with the cost of living as exacerbators of this generational problem of largely unaffordable housing.”
How can millennial homeownership become more obtainable?
Brad Seibel, head of Sage Mortgage, has two terrific ideas. He thinks first-time buyers should be allowed to withdraw from a 401(k) or other retirement accounts for their down payment without penalty. And Congress should allow tax deductions for employers who provide down payment assistance or monthly house payment assistance to their employees, he said.
Jim Gray, a senior fellow at the Lincoln Institute of Land Policy, sees an opportunity for Fannie Mae and Freddie Mac to increase their purchases of chattel loans. Those are loans made on movable manufactured homes.
An April working paper Gray co-authored with George W. McCarthy cites manufactured housing as the least expensive home type, costing 35-47% less per square foot than new or existing site-built housing. Only 17% of new manufactured homes were titled as real property. The rest were chattel loans. Congress specified under the Duty to Serve statute allowing Fannie and Freddie to purchase chattel loans.
My online research shows chattel loan terms are considerably more than Fannie and Freddie rates at perhaps 6-9%. Fannie, Freddie fixed mortgage rates are still plus or minus 3%.
I was able to find a low rate of 4.375% on a chattel loan for a well-qualified borrower with 20% down at Goleta-based Community West Bank.
“They are called trailers, mobile homes, modular homes and manufactured homes,” said Clay Dickens, senior vice president at Community West Bank. “There are 1,500 mobile home parks in California, averaging 60-100 units each. They go for $75,000-$80,000 in the Inland Empire, for example.”
Down payment funds tend to be the biggest purchase impediment. Millennials or any other first-time buyer can go to www.downpaymentresource.com for a plethora of information about down payment assistance programs available across America.
Lastly, change the points and fees regulation.
Federal law precludes loan origination charges of more than 3% of the amount financed. This 3% rule includes Fannie or Freddie markups and lender underwriting charges. This cap often makes loan officer compensation incentives untenable. Or it creates a mathematically impossible number for the issuance of small loans of around $150,000 or less.
Freddie Mac rate news: The 30-year fixed rate averaged 3.14%, 5 basis points higher than last week. The 15-year fixed rate averaged 2.37%, 4 basis points higher than last week.
The Mortgage Bankers Association reported mortgage application volume was unchanged from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $625,000 loan, last year’s payment was $11 less than this week’s payment of $2,682.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: A 30-year FHA at 2.375%, a 15-year conventional at 2.375%, a 30-year conventional at 2.94%, a 15-year conventional high-balance ($625,000 to $822,375 for most lenders) at 2.5%, a 30-year conventional high-balance at 3.125% and a 30-year fixed jumbo at 3.625%.
Eye catcher loan of the week: A 10-year fully amortized fixed rate at 1.99% with 1-point cost.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or firstname.lastname@example.org. His website is www.mortgagegrader.com.
Jeff Lazerson - Mortgage Columnist since 2011