We’ve spoken a lot about the coming purchase-heavy market. In fact, we’ve covered this economic forecast on our blog, in ebooks, and on our podcast. And yet, consumer sentiment dipped significantly last month around the question of whether it’s a good time to buy a house. With interest rates rising slowly but steadily and staggeringly low inventory, attitudes around the strength of the market have been varied. To top it off, mortgage credit is the tightest it’s been in more than six years, with the Mortgage Credit Availability Index hovering near levels seen in 2014.
But the climate we’re seeing right now is simply the calm before the home-buying storm, says a new report from the Mortgage Bankers Association.
“Expected home sales growth this year is still likely to be driven by first-time buyers, spurred by millennials reaching peak first-time homebuyer age,” Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, said.
“Many of these potential buyers will likely utilize FHA and other low down payment loans to purchase a home.”
Millennials to enter the market, despite challenges
Back in November at our MAXOUT conference, we spoke with MBA Chief Economist Mike Fratantoni on his predictions for a strong purchase market in 2021. One of the main reasons Fratantoni was optimistic in the volume of this year’s market was the strong millennial cohort aging into their home buying years.
A well-studied (and often stereotyped) group, millennials are well-known to have faced various economic struggles on their journey into adulthood. From crushing student loan debt to lack of financial literacy, challenges have pushed this demographic to delay their first home purchase. While obstacles remain, millennials appear to be entering the market like never before. In 2020, for instance, they represented 38% of homebuyers, making them the largest single generation purchasing a home.
This trend is likely to continue—and accelerate. New reports indicate millennials are willing to go to great lengths to land a house, with 44% saying they would buy a home based on photos of it alone. The same study found that 30 percent said “COVID-19 pushed them to begin house hunting earlier than they originally planned.” More statistics: A majority of millennials were willing to purchase a fixer-upper (71 percent) or would purchase a home sight unseen (80 percent). Overall, this data points to the fact that the millennial demographic is highly committed to home buying in the near future.
While slightly rising interest rates and historically low inventory pose impediments to finding the right home, the MBA remains confident a recovering economy will persuade millennials to enter the market in unprecedented numbers in 2021. If these predictions hold true, purchase volume may reach new heights—and lenders may find massive opportunity in reaching the millennial audience.