Millennial purchase 'boom is just starting': Ellie Mae
As millions of millennials reach the typical home shopping age, their impact on the housing market grows.
In conjunction with this summer's historic interest rate drops, millennials locked in average 30-year rates of 3.36%, the lowest since the Tracker's inception in January 2016. The average fell from 3.42% in May and 4.39% in June 2019.
The split of origination types closed to millennials inverted from the month prior. Purchases accounted for 56% of activity in June, up from 47% in May but a precipitous drop from 85% year-over-year. Refinancing made up about 43% of June's millennial loans, down from 53% in May but up significantly from 14% the year before.
Looking ahead, millennials will have increasingly substantial influence on housing as they "emerge as a dominant force relative to driving the purchase market forward," Joe Tyrrell, chief operating officer at Ellie Mae, said in a press release.
"Millennials represent the single biggest opportunity in the housing market today. Per U.S. Census data, there will be over 4 million millennials reaching the age of 29 to 30, each year for the next several years," said Tyrrell. "Our data indicates that while we're currently seeing an upturn in millennial purchase activity, the true boom is just starting. We expect that their entry into the market, as they reach prime home buying age, will fuel purchase transactions in 2021, 2022 and 2023."
Age is a prime indicator for first time home buying and the 30-year-old milestone brings consumers to the market. At 31.8 years, the average age of millennial borrowers in June decreased from 32.1 years in May and rose from 30.4 years in June 2019.
With the economy reopening further in June, lenders took on more risk. Average millennial FICO scores dropped to 739 from 742 month-over-month but still stand above the 725 from a year ago.
With a rising share of younger borrowers, technological capabilities of the lending industry have never been more important.
"With every passing day, it becomes more apparent just how critical digital mortgage technology is to lenders right now," said Tyrrell. "Capabilities like online applications, automatic updates and eClosing offer millennial customers the seamless digital experiences they expect while freeing up time for the human interaction necessary to answer questions or concerns they may have as they navigate the homebuying process for the first time."
Conventional mortgages accounted for 80% of completed loans to millennials in June, while Federal Housing Administration loans took up a 16% share. Mortgages guaranteed by the U.S. Department of Veterans Affairs accounted for 1%, while other unspecified types of financing constituted the remaining 2%.
Married individuals represented approximately 60% of loans closed compared to 63% in May and 54% the year prior. Overall, about 58% of primary borrowers were male, 30% female and 13% unspecified. The average loan amount fell to $208,759 from $212,916 in May while rising annually from $199,919. With the low interest rates bringing surges of volume, it took 45 days to close a loan in June, up from 43 days in May and 40 days a year earlier.
When broken down between older millennials (borrowers between 30 and 40-years-old) and younger millennials (borrowers between 21 and 29 years old), the splits change.
Purchase share for the elder group only reached 47% in June compared to 78% for the younger group. By loan type, conventional mortgages made up an 84% share for older millennials versus 72% for younger while FHA loans made up 13% and 24%, respectively.