In this week’s Mortgage Market Update, we’ll examine how Millenials are expected to impact the real estate market, check out current mortgage rates, and see where they’re likely to go.
Generation Y to Bring in Big Wave of Purchases
Generation Y, otherwise known as Millennials, are said to be major influences on the future of the U.S. housing market. But if you take a look at the statistics as they stand right now, you wouldn’t know it. Only 36 percent of Americans under the age of 35 currently own a home, according to data from the Census Bureau. That figure is down a whopping 42 percent from 2007 and is at the lowest level since 1982. So why on Earth would a demographic that is clearly not buying homes have such a big impact on real estate?
The answer lies in the Millennial’s motivation. Sure, the majority of them are still renting or living at home with parents – but when surveyed by Fannie Mae, 90 percent of Millennials said they would prefer owning over renting. The desire is there. Unfortunately, student loan debt and tight inventory has made it tough for the 30-something crowd to enter the market.
“When we surveyed Millennials they cited several barriers to homeownership, especially access to financing,” said Steve Deggendorf, a senior director for Fannie Mae.
Whether it’s due to dings on their credit, overwhelming student loan debt, or the struggle to come up with a 20 percent down payment, folks in this age group are trying to obtain their piece of the American Dream, but there appears to simply be too many hurdles in front of them right now.
The good news however, is the fact that getting a loan isn’t quite as challenging as it was. And with specialty programs such as FHA loans (which require a much smaller down payment) and USDA loans (which require no down payment but must be used to purchase a home in specific areas) the options for financing have grown.
“Mortgage lending is getting a little less tight, with lenders approving buyers with a little lower credit score and who have less of a down payment,” Deggendorf said.
Add in the fact that mortgage rates continue to remain fairly low and you can see that, as more inventory opens up, more and more Millennials will be able to make the switch from renting to owning. And as this occurs, the real estate market will most likely shift. Analysts predict a huge wave of purchases in the future as more and more Millennials gain access to home financing.
Mortgage Rates At-A-Glance
- Currently Trending: Neutral
- 7 Day Forecast: Neutral
- Potential Volatility: Average
Rates improved last week, as reported by Sigma Research. The overall MBS (mortgage backed securities) market improved last week by 30 basis points, which may mean better mortgage pricing.
According to Sigma Research, it is unlikely that we’ll see major swings up or down until after Janet Yellen speaks today. Of course the happenings in the Middle East can always be a contributing factor in the mortgage rate market as investors continue to look for safe places to put their money.
As for volatility this week, Sigma Research says there’s not much scheduled news until Yellen speaks to Congress, which may cause some volatility in the market. The issues in the Middle East are more likely to cause markets to shift.
The bottom line: When things are neutral and volatility is relatively low, it may be a good time to lock in a rate. However, there’s no guarantee that rates won’t continue to move lower so floating is always an option. If you’re unsure of the best strategy to securing an affordable mortgage rate, the best thing to do is speak with your mortgage professional to discuss your options.