Millennials on Verge of Home Buying Explosion

Despite reports that oppressive student debt or a desire to a desire to keep renting will keep homeownership rates for twenty and thirty-somethings at record lows, millions of them are waiting on a slightly fatter paycheck to begin the process of buying a first home, according to a new national study.

An increase of 15 percent or less in annual income will be enough to turn nearly one third (29%) of U.S. Millennials1 into home buyers, according to a new national survey of Millennials commissioned by loanDepot LLC, one of the fastest growing nonbank lenders in the nation. The loanDepot survey of more than 1,000 Millennials who don’t own a home also found more than a third (35%) plan to buy within five years and they’re acting now to turn dreams into a reality. They’re getting their credit in order (58%), paying down debt (47%) and saving for a down payment (47%).

This means Millennials earning the $73,6002 median household income for college-degreed adults need $11,040 more a year3 to qualify for a median priced home of $219,800.4 The potential impact of a 29 percent increase in the number of Millennial home buyers would result in approximately 449,500 more homes sold,5 valued at a total of $94.4 billion.

“Our survey confirms income is a key to opening the doors of homeownership for Millennials and they’re more than committed to it; they’re actively planning for it,” said Anthony Hsieh, chairman and chief executive officer, loanDepot LLC. “Their strong desire to become homeowners, coupled with the commitment of getting their finances in order, suggests a renewal in first-time buyer demand may be possible if we sustain the necessary economic and market conditions.”

Nearly half (48%) of Millennials in the survey said it’s not fair that student loan debt (SLD) is given equal weight with credit card or consumer debt during the home loan application process.

Almost two-thirds (58%) also agree the federal government should make it easier for creditworthy borrowers with SLD to get the financing they need to buy a home.

Only 14 percent of Millennials in the survey opposed the idea.

The recently introduced FICO 9® credit model reduces the importance of medical debt on a borrower’s credit score across multiple credit reporting sources. The survey suggests Millennials are calling for the same with SLD. FICO 9® has been adopted by most industries with the exception of the housing industry and government sponsored enterprises (GSEs).

“We’re at a tipping point in which lenders, regulators, legislators and investors need to remove the unnecessary and unfair barriers blocking Millennials from homeownership,” Hsieh said.

Even though stricter lending standards are making it tough for most borrowers to qualify for a mortgage, not all Millennials in the survey oppose them. They do however appear to think the pendulum has swung too far and call on the federal government to make it possible for low and mid-income people to access credit.

Two out of three (65%) of Millennials who don’t own a home today agree that making it harder to get a mortgage guards against risky loans and will help prevent another mortgage crisis (59%).

Nearly half or 49 percent say these stricter requirements are hurting homeownership. This is especially true of respondents who make under $50,000 a year (52%) compared to those earning over $50,000 (44%). One in three (30%) believe stricter guidelines are a bad idea, while almost half (47%) are unsure and 22 percent say they are a good idea.

Eighty-two percent believe homeownership strengthens our country and they believe everyone should have a fair opportunity to own a home in their lifetime (86%).

To help make that happen, three-quarters (76%) say the federal government should make it possible for low and mid-income people to get a mortgage. This is especially true for respondents who plan to buy within five years (78%).

While student loan debt is a greater problem for today’s Millennials than any other generation in our nation’s history, it isn’t deterring their near-term plans to become first-time home buyers.

Of the Millennials responsible for paying SLD (30%), four out of 10 (40%) say they plan to purchase a home within five years. When it comes to perceptions on lowering their debt-to-income (DTI) ratio in preparation for homeownership, the survey found Millennials think they need to cut more than is actually necessary.

Almost half (48%) believe the average borrower with SLD needs to lower their total monthly debt payments by more than $300 a month to qualify for a home loan, with 28 percent saying $451 a month or more.

In reality, an analysis of loanDepot data of 46,000 first-time home buyers from 2010 to 2014 shows the average borrower with SLD needs to reduce their total monthly debt payments by only $150 to $300 depending on their DTI to qualify for a home loan.6

A recently released report7 estimates SLD will reduce real estate sales by eight percent in 2014, nearly $83 billion in sales, and households paying $750 or more a month in SLD will be priced out of the housing market.8 With SLD increasing by about six percent annually9, industry experts expect this trend to continue.