Millennials have officially taken over as the driving economic force today. As more and more baby boomers face retirement and are no longer in the work force it’s the millennial who will wield the purchasing power. This age group ranging from 18 to 34 or so which also means their buying power is beginning to mature. A new car, new clothes and even eating out and weekend entertainment is being paid for out of the millennial’s pocket. But what about real estate? Should millennials add real estate to their financial profile? Is it time to buy a home now and if so, why?
One of the things millennials witnessed at an early age was the financial mess that occurred in the last decade leading up to about 2008. Mortgage lenders in their quest for making more home loans would create a new loan program that previously ineligible borrowers could qualify for. Lower down payments, reduced credit scores and subprime loans hit the market. At a very tender age they soon heard the news and saw reports of record foreclosures, a struggling economy and double-digit employment. If you’re 12 years old when all of this was going on no doubt it made an impression. If a millennial today is a bit shy about buying a home, it’s no wonder due to what they saw 10 years ago. But it’s different today.
The loan programs that caused all the turmoil have long gone as well as the lenders who made them. Today, lenders approve loans using the Qualified Mortgage, or QM standard. These programs are fully amortized, fully documented and loan terms do not exceed 30 years. The questionable loan programs of the last decade are no longer around. And because of QM guidelines, lenders follow a common sense approach when approving a mortgage loan.
Second, rates are still near relative lows. The Federal Reserve expects to increase rates in 2017 another three times which will impact borrowing costs as well as affordability. If you buy one year from now instead of in the current environment you’ll find you can qualify for less mortgage than what you can qualify for today.
Third, home values are back on the rise. For the first time in 10 years the maximum conforming loan limit posted an increase. For 10 years the maximum conforming limit was $417,000 before the 2017 increase was announced late last year. This is because the national average price of a home finally rose above the price in 2007 when home values began to fall. Today, home values have erased that deficit and due to a return to traditional underwriting and affordability standards, record foreclosures are a thing of the past.
The millennial buyer today and shop with confidence knowing the lender they’re working with is on solid footing and the loan they’re approved for is one they can afford to pay each month. When you combine both an increase in interest rates and prices of homes, it might be the very best time to buy in a long, long time.
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