Hint: it's affordability AND risk
Andrea Riquier wrote in the MarketWatch article Why first-time home buyers are staying on the sidelines that the missing-link into housing growth is first-time homebuyers and the primary reason for this miss is home prices. While that is certainly true, what is not so transparent but is eluded to are the human, emotional elements at play here.
First-time Buyers Have a New American Dream
As a result of the housing crisis, we have virtually skipped over a decade of housing growth. Would be first-time buyers during that decade were left on the sidelines only to watch family and friends experience the stresses of homeownership. This did a couple of big things: (1) created distrust in the whole housing process and those involved; and (2) changed their behaviors and preferences on how to spend their hard-earned money.
Fast-forward today, while many are beginning to become successful and think about the future, their American Dream has evolved. They now cherish experiences like travel or the arts more than owning "things." They stream music, rent bikes in cities and, yes, lease apartments.
It only makes sense when you consider that between the personal experiences and what they have heard through the news or movies ("The Big Short" should really hit this home), they may not trust the fact that they will be able to keep what they buy anyway. Add to this:
- Millennials change jobs in fewer than 3 years on average
- Jed Kolko states "Young people also delaying household formation until later in their lives than past generations"
- Claire Jeffers says "she knows something — perhaps another job, or graduate school — might pull her away"
Altogether, the future is a bit of a mystery. The only way they can seemingly control it is to not commit and lease life by the day. However, according to a ValueInsured Harris Poll survey, an overwhelming 90% of Millennial renters say it's important to one day own a home or to become a homeowner again. So, they want a home BUT it's got to be on their terms. It has got to be fairer, giving them greater control and they must have the flexibility to grow and move as they need. They cannot think about 30 years down the road right now and certainly don't expect to be in the same place that long. This is the new American Dream.
Move-up Buyers are Mentally "Stuck"
Those homeowners with first-hand experience during the housing crisis have a different view. They have families and are educated on the homeownership process but have also experienced a horrible time in housing. CoreLogic shows that many home prices are finally coming out of negative equity after for so many years, yet committing to go through it allover again can be scary. Then there is the issue of buyers:
For the housing market, meanwhile, first-timers represent fresh demand. Without them, current homeowners can’t sell homes and move up; without move-up transactions, many older people can’t sell and downsize as part of retirement.
So, homes that are more affordable are coming available in a time when interest rates and guidelines are historically the most favorable, yet no one is buying. Affordable is admittedly subjective, but typically we expect first-time buyers to snatch up the older homes with move-up buyers looking to drive the new build market. Yet it is all stuck. Things aren't flowing.
Evolving for the Modern Homebuyers
It is not just young people, everyone now has a millennial-mindset to purchases. Buying anything has to be easy, quick, fair, flexible and above all be pro-consumer. When one considers a mortgage, these expectations probably do not come to mind. That has to change. Between the CFPB driving more modern processes to lenders introducing all digital mortgages, the execution elements are getting better. Mentally, though, to ask a person that grew up on leasing or ask a different person who experienced a lot of recent pain to get into a new home, we have to address the risk side of things. New tools like down payment protection, which protects the homebuyer's down payment against falling home prices for a certain period of time, give control and flexibility back to the homebuyers allowing them to achieve their version of the American Dream on their own terms.
Giving people the home they want plus the freedom to pick and move in 3, 5 or 7 years for whatever reason without losing everything, is a compelling middle ground between the old ways of homeownership where people stayed in one place for 30 years and a more nomadic lifestyle that many people enjoy today. It takes the risk off the table and allows buyers to realize that today is a good time to buy with homes being much more affordable than renting. Without removing this risk and uncertainty, many potential buyers will remain blinded by emotions unable to take advantage of it.
Cleve A. Bellar
CMO, ValueInsured