Ellie Mae: Millennials’ loan preferences divided by age

Millennials continued to favor government-backed FHA loans in October, taking advantage of very low interest rates, according to the latest Ellie Mae Millennial Tracker. In October, up to 16% of home loans closed by these borrowers – mortgage applicants born between 1980 and 1999 – were FHA loans secured with an interest rate of 2.99%.

That is the lowest these rates have been since Ellie Mae began tracking this data in 2016, according to the report.

“FHA loans were especially popular among younger millennials under age 30,” observed Joe Tyrrell, president of ICE Mortgage Technology. “Nearly a quarter of them chose this financing option, in part because of the more flexible qualification criteria. However, older millennials preferred conventional loan products.”

Only 7% were for refinances, so purchase loans represented 93% of all closed FHA loans to millennials in October, down from 92% in September. Across all loan types, purchase loans closed by millennial borrowers held steady month-over-month at 56%, and refinances at 43%. 

Days-to-close across all loans remained the same from September to October at 49 days.

FHA loans also took 49 days to close, which was a day longer than the prior month. Similarly, there was a slight uptick in days-to-close for Conventional loans month-over-month from 49 to 50 days, and for VA loans from 55 to 60 days.

Realtor.com: Buyers to struggle with affordability 2021

Realtor.com forecasts mortgage rates likely will stay at near 3% then slowly rise to 3.4% by the end of 2021, while home sales and new construction increase 7% and 9% respectively, compared to 2020, and warns of at least two wildcards playing out next year.

In 2021 buyers may finally have a better selection of homes to choose from later in the year, “but will face a renewed challenge of affordability as prices stay high and mortgage rates rise,” said Danielle Hale, chief economist at realtor.com. “While waiting until the fall or winter months of 2021 may mean more home options to choose from, buyers who can find a home to buy earlier in the year will likely see lower prices and mortgage rates.”

Here are some takeaways from the organization’s announcement:

Affordability – becoming a growing obstacle as low inventory combined with strong homebuyer demand and low interest rates increased prices to a point where “mortgage rates are no longer able to counteract rising home prices,” the report notes, testing affordability for buyers across the board in 2021 reducing demand and price increases.

Inventory – a problem for the U.S. housing market since 2015, intensified in 2020, primarily due to an estimated shortage of nearly 4 million newly constructed homes by the end of 2019. While the number of homes for sale will slowly rebound in 2021, a full recovery of the inventory will take time, so “sellers will continue to be in the driver’s seat.”

Buyers – will find some relief in 2021 as more homes hit the market, yet many properties will be less affordable for buyers as mortgage rates start to rise and no longer will help offset higher prices.

Sellers – will continue to hold the upper hand throughout 2021 as the number of buyers outweighs the number of homes for sale. Even though home prices will not grow as fast as they did in 2020, “steady increases will continue to push home prices to new highs,” and homes will sell faster. Fast sales in many parts of the country “will be particularly difficult for first-time buyers” learning how to navigate the market. “With less cash and no home equity, millennial and Gen Z first-time buyers will be impacted the most by rising home prices and interest rates,” said Hale.

Millennials – the largest generation in history, will continue to shape the housing market as they outnumber Gen-X and Baby Boomers. Younger millennials, the larger segment of this demographic, will continue to fuel the first-time buyer market and compete with the older Gen-Z buyers who turn 24 and begin to enter the housing market in 2021.

Two wildcards – could shake up the housing market in 2021, the report notes: The country’s ability to control and contain the spread of COVID-19, and distribute a vaccine and the possibility of a deep recession.  

COVID-19 may require additional lockdowns and quarantines that “could put a dent in housing inventory and sales,” slowing the market and putting increased pressure on buyers; or lead to further growth if a vaccine is quickly distributed.

A recession risk emerges if the gap widens between those with and without jobs and the industries recovering well versus those that do not. Such K-shape recovery could lead to a dip in consumer spending that weakens the economy in the short term; and drive would-be homebuyers out of the market, cooling demand and driving down home prices in the long term.

REX sues State of Oregon for denying buyers rebate savings

REX has sued the State of Oregon for alleged antitrust practices. The Austin, Texas based real estate fintech alleges a rebate ban policy the state mandates across Oregon does not allow homebuyers to benefit from discounted real estate sale fees “harms consumers and stifles competition.” REX’s lawsuit is demanding “an immediate end to the unfair policy.”

The fintech maintains that it “seeks to create dramatically better outcomes and experiences for homebuyers and sellers,” by taking a stand to reform traditional real estate sales practices that lead to anticompetitive and predatory practices.

REX reportedly filed the lawsuit on November 30, 2020, following in the footsteps of a U.S. Department of Justice civil lawsuit against, and proposed settlement with, the National Association of Realtors (NAR) for promoting anticompetitive market behavior.

REX, which has never been a NAR member, “is committed to returning real estate fees to our customers,” said Jack Ryan, REX’s CEO and co-founder. “Through scalable technology and an honest approach to every consumer, our team is delivering tens of thousands of dollars in savings to consumers whom traditional real estate brokers have exploited with hidden fees and predatory practices. Oregon’s rebate ban is an affront to middle and lower-income families struggling to pull together a down payment.

“As a result of the NAR’s behavior and policies like Oregon’s prohibition on discounts, consumers lose $60 billion in incremental fees every single year. Our lawsuit against Oregon is a major step toward putting real estate consumers first,” Ryan explained in a statement.

REX launched in Oregon in 2019. Soon after, REX reportedly received a letter from the Oregon Real Estate Agency that informed REX its Buyer Rebate Program (BRP) was not in line with Oregon’s rebate ban policy. Currently active in 17 states, the fintech said it legally delivers BRP outside of Oregon.

BRP refunds half of the commission, traditionally claimed by the real estate brokers, to the buyer, reducing home buying costs by thousands of dollars. Since “the vast majority of consumers now find their homes themselves through online searching and research,” the rebate ban prevents homebuyers from getting a better deal from their agents, according to REX.

REX’s calculations show in Oregon, a 1.5% rebate for buyers would save homebuyers $385 million in fees each year. If the state’s policy ended, REX would be able to deliver $5,400 in savings to the typical Oregon homebuyer.

According to REX’s experts, 7,700 more households in Oregon could purchase homes if real estate fees dropped by 1.5%—the level of savings that REX provides and that Oregon state policy prohibits.

Complaints from two home sellers who filed in Illinois and Missouri district courts alleging “artificially inflated commission fees that incur unfair costs on home sellers,” led to the DOJ lawsuit filed against NAR and its home sales consumer network Multiple Listing Services on November 19, 2020.

According to REX, both cases have denied the NAR’s motions for dismissal, received DOJ support, and will proceed to trial stages.

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