How Lenders Can Help Millennials Achieve Homeownership in an Unprecedented Market

January 24, 2024 | Matt Kojis | Sarah Borum
How Lenders Can Help Millennials Achieve Homeownership in an Unprecedented Market

Today’s bleak homebuying landscape is a perfect storm of economic factors. High mortgage rates, soaring home prices, tight supply, and an uncertain geopolitical environment have led to a housing market that feels inaccessible to many, but particularly those in the Millennial generation (those aged 27 to 42). Despite having experienced three financial recessions — the implosion of the dot-com bubble, the 2008 housing crisis, and the coronavirus pandemic — most Millennials still see homeownership as a central part of the American dream. Forward-thinking financial institutions can help them achieve this goal through effective social media outreach, personalized educational journeys, and a seamless digital application experience.

The Challenging Housing Market 

United States home sales are headed for their largest slowdown since 2011, according to Fannie Mae. The Federal Reserve increased the key federal funds rate 11 times between March 2022 and July 2023 to tame inflation amid the COVID-19 pandemic and supply chain disruptions following the Ukraine-Russia conflict. The majority of those with a mortgage have a rate below 6%, with 62% of homeowners at a rate below 4%. As of this writing, the average 30-year fixed rate is above 6%. Given this “rate lock-in” effect, the only people selling right now are the ones who need to, and many are opting to stay in their current homes and expand or rent. Higher interest rates, low inventory, and elevated home prices have resulted in the lowest volume of mortgage applications in almost thirty years.

A Uniquely-Impacted Generation

While Millennials constitute the largest population group in the US, first-time homebuyers accounted for just 28% of all home purchases last year, the lowest level in 41 years. The average first-time homebuyer in America is 36 years old, the oldest age recorded since the National Association of Realtors began keeping track of such data. Persistent inflation has hampered both their savings and purchasing power, as has the end of a federal moratorium on student loan repayment.

Moreover, Millennials face stiff competition from high-net-worth investors and hedge funds for the reduced number of smaller, more affordable homes on the market. More than a quarter of all single-family home purchases were made by investors in June 2023, compared to 15% in March 2020. MetLife Investment Management forecasts that institutional investors may control 40% of U.S. single-family rental homes by 2030. Adding insult to injury, when institutional investors do decide to sell, if at all, they will generally sell to another large institution, effectively removing those homes from the market of the traditional homebuyer.

Millennials Still Value Homeownership

Despite the current challenges, 66% of Millennials say homeownership is a central part of the American dream, believing the opportunity to build equity outweighs today's higher costs of entry. These younger buyers are debunking the "lazy Millennial" myth by working harder during the home-buying process than we may have ever seen before. According to Zillow, first-time buyers are more likely to contact at least three real estate agents and three mortgage lenders, compared to repeat buyers. Millennials are also more likely to make at least two offers on homes and to report being denied a mortgage at least once before they're approved for a loan. The cohort’s sheer size, life stage (in their peak homebuying years), and desire to settle down in the future could lead to a surge in home sales.

Three Ways Lenders Can Help

Banks, credit unions, and independent mortgage lenders can help Millennials make their dream of homeownership a reality in three primary ways.

1. Attract and engage through social media
Financial institutions need to meet these prospective home buyers where they are: on social media. According to a McKinsey Health Institute 2022 Global Gen Z Survey, Millennials are more active on social media than Gen Z and other generations, with 32% stating they post either daily or multiple times a day. These digital natives are also much more likely to trust a brand that is widely present on social media. Given this generation's skepticism toward the financial services sector and its growing debt burden, it is important to show empathy and withhold judgment about their spending habits.

2. Educate, educate, educate
The complexity, cost, and commitment of purchasing a home can be overwhelming even for repeat buyers, let alone Millennials on their maiden home-purchasing voyage. Lenders can assist by capturing data on goals, preferences, and concerns to deliver personalized resources, guidance, and support throughout the process.

For instance, two-thirds of millennials who want to own a home have $0 saved for a down payment. Imagine providing these individuals with a tailored digital plan that visualizes what the path to homeownership might look like, say, over the next three to five years. Depending on the person, that roadmap may include activities like paying down debt, cleaning up credit, making automatic deposits into a savings account dedicated to a home down payment, using money management tools, completing virtual mortgage literacy courses, and enrolling in a flexible down payment assistance program. For this group that grew up with Playstation, Xbox, and Nintendo, incorporating gamification elements (e.g. levels, badges, custom avatars, etc.) can make the engagement less formal and more enjoyable.

3. Offer a seamless digital application experience
When they are ready to pivot from fantasy scrolling on Zillow to applying for a mortgage loan, 
Millennials expect the same simple and fast digital experience from their lender that they receive from the likes of Amazon, Netflix, or Spotify. As the first truly digital generation, they are comfortable with submitting personal and financial information online with minimal human interaction. According to McKinsey & Company research, about 60% of prospective borrowers are open to completing their entire mortgage application online, without phone or in-person support. A Millennial evaluating lenders with comparable rates and fees is likelier to base their decision on the convenience and speed offered by a fully digitized process — from prequalification to document import, approval, e-signatures, and closing. 

The Importance of Staying Connected 

To break through to the Millennial audience, financial institutions must offer prospective homebuyers a valuable, engaging, and seamless digital experience. This includes educating customers about the home buying process via omnichannel experiences—specifically social media, which drives engagement, site traffic, and lead generation. By combining cutting-edge user experiences, analytics capabilities, and easily-accessible information, lenders can be the trusted source that Millennials turn to when the time is right for them to finally purchase their first home.