The pandemic struck at a time when millennials are aging through the typical milestones that often lead to buying a home.
"This year, the majority of millennials are turning 30 and are entering their first years of home ownership," said Mark Fleming, chief economist at First American Financial, in a press release. "Although the pandemic poses new challenges to home ownership, millennial lifestyle choices will continue to support potential home demand in the coming years, meaning that millennials may be ready to fuel home demand in the 20s . "
Millennials are the largest generation group in the United States. While many postpone buying homes for personal or professional reasons, the demand for home ownership in this group rose 3 percentage points annually in 2019, compared to 1.7 points for Generation X and 0.8 points for Babyboomer First American Home Ownership Progress Index .
"It seems that millennial home ownership has been delayed and not denied," added Fleming.
While the pandemic initiated an economic downturn, interest rates were rock-bottom and mortgage demand rose accordingly.
According to Ellie Maes Millennial Tracker, the average 30-year millennial interest rate fell from 3.48% month-on-month to 3.42% in May and from 4.53% in May 2019 to 3.42%. It is the lowest average millennium interest rate since the start of Ellie Mae's monthly report in January 2016, and corresponds to historically low mortgage rates.
Refinancing accounted for about 53% of loans to millennials in May, compared to the 55% four-year high in April. This corresponds to an increase of 39 percentage points compared to 14% in the previous year. The purchase share in May 2020 was around 47%, the remaining 1% unspecified.
"The refinancing market is still strong, but as we continue to be in the traditionally key season of home buying, the buying market is being brought to life as historically low interest rates give first-time buyers the confidence to make the American dream a reality," Joe Tyrrell, chief operating officer at Ellie Mae, said in a press release.
As the country struggles with financial unpredictability, lenders preferred to take fewer risks. The average FICO value for millennials reached the highest level in the history of the Millennial Tracker. It rose to 742 from last month and rose 21 points year-on-year. The average age for millennial borrowers fell from 32.3 years in April to 32.1 years, but rose by almost two years from 30.3 years in May 2019. Married people accounted for approximately 63% of loans taken out, compared with 64% in April and 53% in the previous year.
"We are in an era of economic volatility and this has led lenders to tighten credit requirements, so it is more important than ever for millennials who want to enter the market or refinance take good care of their finances and handle their credit carefully, "said Tyrrell.
Conventional mortgages accounted for approximately 83% of millennial loans in May, while 14% were federal housing administration loans. Mortgages guaranteed by the U.S. Department of Veterans made up 1%, while other unspecified funding types made up the remaining 2%.
Men made up almost 60% of the main borrowers, 29% were women and 12% were unspecified. The average loan amount decreased from $ 213,990 in April to $ 212,916, while it rose from $ 187,432 in the previous year. A loan took 43 days, after 40 days in April and 39 days in the previous year.
When splitting between older millennials (borrowers between 30 and 40 years old) and younger millennials (borrowers between 21 and 29 years old), the breakdowns change logically.
The funding share for the older group reached 61% in May, compared to 29% for the younger group. By loan type, conventional mortgages accounted for 86% for older millennials, 75% for younger and FHA loans, 11% and 22%, respectively.