With the housing market continuing to strengthen on the back of surging home prices and robust demand, more millennials are expected to tap Federal Housing Administration-backed mortgage loans as they look to buy homes in greater numbers, according to Ellie Mae’s latest Millennial Tracker report.
FHA loans accounted for 35% of the total home loan market in January, up from 34% the month prior. Meanwhile, new-home mortgages taken on by millennials accounted for 84% of closed loans during the month, compared to 82% in December and 77% from August to November.
- On average, millennials closed on their homes in 49 days, up from 48 days during the previous two months.
The increase in FHA loans being issued to millennials comes despite a recent decision by President Donald Trump to put the brakes on a planned 25-basis-point decrease in the FHA’s mortgage insurance premium, a move that supporters of the initial measure said would have saved FHA-insured homeowners an average of $500 in 2017. FHA loans offer smaller payments and can accommodate lower credit scores as compared to conventional mortgage loans.
Still, Ellie Mae forecasts an uptick in FHA loans being issued as more millennials look to gain a foothold on the property ladder. The group made up the largest generational share of the total homebuying market in 2016.
Rising home prices and mortgage rates, along with languishing inventory levels, are seen as major barriers to entry for millennials to the housing market. However, reports suggest that this group is eyeing the suburbs in a bid to find properties at the entry-level price point.
A recent survey from Zillow found that nearly half of millennials live in the suburbs and 20% live in rural areas, with the remaining 33% residing in urban areas. The results buck the notion that millennials are heading in droves to city centers that promise walkability and amenities. Of the millennials who moved last year, according to Zillow’s report, two-thirds stayed in the same city.
Builders are responding with new home lines marketed at this group, featuring smaller footprints with fewer customization options and lower monthly payments while still incorporating energy efficient features and other finishes.
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