It’s been a tumultuous few months for the markets. Yet despite the turbulence of August, the fourth quarter of 2015 has proven a bright spot in the U.S. economic recovery. October saw unemployment dip to 5 percent, the lowest it has been since April 2008. With some economists theorizing that the U.S. is now hovering around the natural rate of unemployment, American workers may begin to experience a long awaited wage increase. This is good news for the housing market in 2016.
According to a Fannie Mae report published in July, 40 percent of renters said that an increase in income was the primary factor that would lead them to purchase a home. With median wage growth reaching its highest in six years in April at 3.3 percent, American workers may finally begin to feel the recovery in their paychecks.
Research suggests that we may be entering a period of significant growth for the housing market, but an uptick in homeownership is not something we can predict with any certainty for 2016. What we are expecting in the next 12 months, however, is a fundamental shift in the way Millennials are approaching homeownership, greater availability of credit for first time homebuyers, major technological advancements for the industry and an evolving closing process.
MILLENNIALS AND HOMEOWNERSHIP
Millennials as a group are actually less of a homeownership aberration than commonly believed. In fact, Millennials tend to hold very similar opinions as previous generations when it comes to the value of homeownership. In the Fannie Mae study referenced earlier, nine in 10 Millennials said they plan to own a home at some point in their lives.
Consistent with this goal, nearly half of millennial renters said that their primary reason for renting today is getting themselves financially prepared to purchase a home. That’s versus just over a quarter of all renters.
Millennials differ from other generations in what motivates them to purchase homes, however. Millennials are significantly more likely to view major life milestones like marriage, childbirth or completing one’s education as primary factors in choosing when is the right time to buy, compared to Gen-Xers and Baby Boomers.
CREDIT AVAILABILITY SUSTAINABLY INCREASING
In combination with the other positive signs of economic growth we’ve observed, we believe that a continued increase in credit for homebuyers will continue in 2016. October witnessed an increase of 1.5 percent in the Mortgage Credit Availability Index (MCAI), continuing the index’s positive trajectory.
In particular, first time homebuyers stand to benefit from an increase in credit availability in the New Year due to the growth of affordable housing and conforming loan programs.
TECHNOLOGICAL ADVANCEMENTS NO LONGER A BONUS
As the largest living generation in American history, Millennials are quickly becoming the future of the housing market. With more and more of this cohort purchasing homes, lenders are beginning to come to terms with what these first time homebuyers expect.
The consumer lending sector is not immune to Millennials’ expectations with regard to all things high tech. Lenders looking to succeed with Millennials need to consider these would-be homebuyers’ user experience in the digital world. Everything from smartphone applications and virtual scheduling portals to providing greater access to information and more streamlined, intuitive ways to build out transaction documentation will become par for the course in the coming years.
EVOLVING CLOSING PROCESS MEANS MORE HOMEWORK
Unknown to many homebuyers, on October 3 the consumer lending industry underwent a pretty significant change. A regulation created by the Consumer Financial Protection Bureau (CFPB) called the TILA-RESPA Integrated Disclosure rule (TRID) or, more commonly, Know Before You Owe, was implemented.
Know Before You Owe requires more documentation earlier in the borrowing process on the part of the homebuyer than was previously required. The new rule should improve and streamline the process when it comes to securing a loan and closing on a home. Ultimately, the rule means that would-be homebuyers who do their homework will be rewarded.
If you are considering a home purchase in 2016, make sure you understand the implications of this regulation and adhere closely to the schedule you agree upon with your lender to avoid any delays in the closing process.
AS WE MOVE INTO 2016
Conditions do appear ripe for Millennials and other first time homebuyers to finally make their move to homeownership, but will they? That’s the million-dollar housing market question. As for how it will be answered, we wait and see.