Federal Home-Buying Incentive Not Enough to Attract Millennials
In January of 2015, the Obama Administration announced a plan to entice more people into buying a home for the first time. A year-and-a-half into the plan, it doesn’t look like this offering was enough (at least not for Millennials).
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What’s the Federal Home-Buying Incentive and How Does it Work?
The President reduced the Federal Housing Administration (FHA) Mortgage Insurance Premium program (MIP) by .5 percentage points from 1.35% to .85%. These reduced fees were supposed to incentivize Millennials and other first-time homebuyers with an average savings of $900 on their annual mortgage payment. And unlike private mortgage insurance (PMI), which drops off of a loan when 20% down is achieved, MIP fees are paid for the remainder of the loan. This would’ve been a substantial savings over the life of the mortgage.
The Administration also pointed out that more people entering the housing market would strengthen the market and that would help current homeowners as well.
So why aren’t they buying?
Someone did. At least initially. FHA loans increased from 23,000 in January to 61,000 in July of 2015. That number was 53% higher than the same month a year prior. But these numbers weren’t Millennials, they were older first-time homebuyers.
Millennials and Homebuying
According to recent research by TD Bank the largest (self-admitted) impediment to Millennial homeownership isn’t the monthly payment but the 20% down that is required in so many loans these days. Thanks to the easy loans of the last decade, banks are now requiring much more of a financial stake in ownership from people they’re lending to and Millennials simply don’t have it. With student loan debt and low wages, they’re not saving the same way previous generations may have.
Loans that do allow for less than 20% down often require PMI, which increases the cost of the loan and makes it difficult for Millennials to afford the home of their dreams.
According to the TD Bank survey of over 1,000 Millennials, their top three priorities when it comes to homebuying are saving for a down payment, paying off debt, and having a reliable job. 19% plan to use assistance on their down payment from friends or family.
With interest rates historically low and these incentives on FHA, what can inspire Millennials to buy?
Perhaps it’s just age. According to findings from NerdWallet, the average home-buying age has changed little over the past 40 years. From 1970-74 the average age was 30.6 for a first-time homebuyer. In 2015, it was 31. Two-thirds of Millennials haven’t reached that age yet. Contrary to popular belief, Millennials aren’t (really) renting longer either. In 1980, the average time to rent before homeownership was five years. Now it’s six.
It’s Not Just Them, It’s Us
The Home Buyer and Seller Generational Trends Report released in March 2016 showed that first-time homeowners only comprise 32% of home sales. Historically that number has averaged around 40%.
If you’re thinking about buying a home, you’re probably interested in learning how you can save the most money. At Bay National Title Company we can help you navigate the closing process. Whether you’re a first-time homebuyer or a seasoned veteran, we’re there for you. Contact us today.