Just like most generations before them, homebuyers born in the early 1980’s through the mid 1990’s believe owning a home is part of the American dream. This section of our society, often referred to as “Millennials,” bring a different view of real estate to the Washington DC market. Arriving into adulthood strapped with enormous student loan debt and limited job prospects, Washington DC area Millennials have had to get creative and move beyond conventional mortgage lending.
When it comes to taking the first step and gaining the ability to purchase his or her first home, the average Millennial must weigh several options.
- Steady Employment – Banks require six months to a year of verified W2 income to gain access to mortgage lending yet many Millennials struggle to make ends meet. Often, side jobs, freelancing, and part-time employment is the Millennial reality. Banks and other financial institutions are forced to modify requirements or risk future profit margins.
- Debt-to-income – Huge student loan burdens coupled with low earning potential can spell trouble for Millennial fist-time homeowners. Mortgage originators must turn to government guarantee programs like FHA in order to successfully lend to Millennials.
- Down Payment – A challenge for any first-time homeowner, but gone are the days when Washington DC buyers walked into banks and other financial institutions with 20% down. Today’s Millennial homebuyers rely on tax credits, Fannie Mae and Freddie Mac guarantees, and gifts from Mom and Dad.
- Credit – Tarnished credit, no credit, or limited credit history are realities for prospective Washington DC Millennial homeowners. Given their debt burdens and limited income prospects, the economic downturn of 2008 has taken its toll on today’s young family attempting to purchase its first home.
While it may seem that Millennials are being sidelined from the real estate market by circumstances outside of their control, one area of financial advantage Millennials have over their Baby Boomer counterparts is a low interest-rate environment. Fresh off an economic downturn and slow recovery, Millennial homebuyers are locking in 30-year fixed mortgage interest rates as low as 3.99%! Just one generation ago, young adults were financing real estate three and even four time’s current rates! The demand for new housing is predicted to increase as the number of families in their 30’s begin looking for more permanent home ownership.
While that last section seems hopeful, Washington DC area realtors and other real estate professionals are keenly aware that the Millennial generation is the key to a stronger housing recovery. Tight credit and lending are keeping young families away from the path to homeownership. One key factor to tapping the Millennial real estate potential is to adjust credit requirements across the board and adjust lending expectations. Time will tell how effective Government Sponsored Enterprise (GSE) reforms will be for the cost and availability of credit. As the conversation unfolds, one thing remains true: working with a trusted realtor is crucial for successful Washington DC real estate outcomes.
…someone nice will always answer!™
Gene is “Realtor® of the Year” for 2014 by Dulles Area Association of Realtors®.