When one of the mortgage industry's top advocates bought his first house in Colorado in the late 1980s at the age of 27, he thought more about the pride of owning a home than its potential appreciation in value. "I never bought a home with a calculator," says David Stevens, president and CEO of the Mortgage Bankers Association and former Assistant Secretary for Housing in the Obama Administration. "Owning a home was recognition of achieving something in your life and your young career."
Now, roughly 30 years later, the enthusiasm of young Americans for buying homes is dramatically different. (Just ask Stevens, who's been nudging his oldest twentysomething daughter to buy her first place, to no avail.) In 2008, 34 percent of young adults with student loans took on mortgage debt by the time they hit the age of 30, according to data from the Federal Reserve Bank of New York; by 2013, that percentage had fallen to just 22 percent. The White House's Council of Economic Advisers estimates that young adults sitting out the housing market over the last decade have likely resulted in 1 million fewer households being created in the United States.
This matters because the housing market contributes a huge amount to the U.S. economy. Historically, on average, new home construction and remodeling alone add about 5 percent to the country's overall economic growth, known as its gross domestic product. That figure is even larger if you add in the jobs created by the housing market, or all of the other services associated with it.
When the housing sector slows down or stalls (see: The Great Recession), it drags down the health of the overall economy. The debate now among economists and industry advocates, like Stevens, is whether millennials will eventually enter the housing market as they age, or whether there's been a permanent shift that has young people no longer interested in buying homes as prolifically as their parents did.
Stevens does not count himself among the pessimists, who assume that millennials will never want to buy. His personal test case, his daughter, wants to purchase a home eventually, he says--just not yet. Instead, Stevens views the millennials' reluctance as response to the weak economy and increased financial pressure. After all, they "watched the Great Recession from the doorsteps of their universities or their first jobs," he says. "The impact of seeing friends or family members lose their jobs and, potentially, lose their homes or go through the restructuring of mortgage debt has to have affected some of their decisions."
So do the tough economic conditions that millennials continue to face: from ongoing career instability to significantly higher unemployment rates to student debt. It's hard to conceive of buying a house if you're worried about, say, finding a job or holding onto it.
We won't know the outcome of the debate over millennials and their approach to housing until more time has passed and more data is gathered. Until then, Stevens keeps pitching a handful of ideas, from both the public and private sectors, to help more millennials access the housing market. As a former community bank executive and HUD official, he's quick to stress that there's not one solution to the slowdown in the housing market. "There may be ways to get 10,000 borrowers into the market here," he says. "Collectively, that can create a million new home sales, and all of these ways can contribute to provide greater access."
Among Stevens' ideas:
"¢ LOOSEN CREDIT STANDARDS, JUST A LITTLE. Right now, it's tough to borrow money for a mortgage because banks and lenders only want to hand out loans to those with top-notch credit scores. Mark Zandi, chief economist for Moody's Analytics, has estimated that dropping required credit scores by just 50 points would give 12 million more people access to credit and, potentially, the ability to buy homes. "There are a lot of young people who don't have a lot of credit experience, who may have stumbled on a car payment, but who are still good, creditworthy borrowers--and you can still validate that," Stevens says. "We need to give some guidance back to the lending industry that enables them to use judgment in underwriting a mortgage."
"¢ PILOT PROGRAMS, LIKE HUD'S HAWK PROGRAM. HUD is in the process of kicking off a pilot program that would allow homeowners to save on their FHA-insured loans, provided they first go through counseling on budgeting and homeowner decisions. The four-year national pilot, known as Homeowners Armed with Knowledge, would save the average homebuyer, who goes through the counseling and secures a FHA-backed loan, about $325 a year, or roughly $9,800 over the loan's lifetime. Plus, it gives more education in financial literacy to potential homebuyers.
"¢ MAKE THE LOAN APPROVAL PROCESS FOR CONDOS EASIER. The process of borrowing money to purchase a condominium (something that appeals to many urban-based millennials) is currently tough, with very conservative approval processes, Stevens says. The FHA (Federal Housing Administration) is the single biggest access point for people to purchase condos, so why not make that process a little less stringent in order to attract younger buyers?
"¢ RISK-SHARING. Banks or lenders could also allow people to buy homes through risk-sharing agreements. This would allow a millennial to buy a home, with someone else fronting the down payment (like a parent or investor). The two borrowers would share both the risk and possible reward on the loan, since they'd all be listed on the mortgage together. "At some point, if you sold that home down the road, they would share in the equity and share in the risk," Stevens adds.
It's unlikely that a divided Congress and White House will pass any laws in the next few years to reform or prop up the housing market in its entirety, Stevens acknowledges. But some of these ideas could come from the private sector and other reforms, through changes to existing FHA regulations. The goal is not to tip the housing market back to excess—those boom days when anyone could acquire a mortgage. Instead, it's just to try to offset the imbalance of a housing market that Stevens feels has become too conservative, particularly for young people who may eventually try to break into it.