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home / Loans and Lending

Mortgage Lenders Can Help Millennials become Homeowners

23 May 2022
mortgage lenders help millennial home buyers

Millennials are the largest generation in the nation’s history by population, numbering some 72 million people. Since the beginning of the pandemic in March 2020, this generation’s share of the housing market has ballooned. According to the National Association of Realtors, millennials accounted for 43% of homebuyers in the U.S. in 2021―an increase from 37% in 2020. This market share is expected to increase further as more millennials take over the home buying market.

The market shift from previous generations to millennials presents lenders with new challenges. Specifically, millennial home buyers have greater expectations and demands when it comes to the mortgage customer experience. Millennials expect smoother, more efficient, and faster onboarding and mortgage loan processes. Furthermore, they are inclined to prefer the convenience and speed of an “anywhere, everywhere” online experience compared to an in-person or phone-based interaction. NAR’s 2020 Home Buyer and Sellers Generational Trends Report found that 78% of older millennials located their home through a mobile app.

The market challenge of motivating millennials

Owning a home is still viewed as a significant life milestone, representing an important step in creating stability and achieving personal success. However, for the millennial generation, it has proved especially challenging.

According to the U.S. Census Bureau, approximately one in three millennials under 35 years of age owned a home at the end of 2018. This is around eight to nine percent lower than both the boomer and generation X cohorts for the same age group. Moreover, housing prices have risen at their fastest rate since 2006, according to the Knight Frank Global House Price Index. The same report shows that in the U.S., prices jumped by an average of 13.2% from 2020 to 2021.

There are several factors at play: millennials have faced rising student debt costs and long-term stagnant wage growth amid sharply increasing housing prices, low housing inventory rates, and higher mortgage loan rates. Another important issue is that many millennials put off significant life events that can help lead to homeownership such as marriage and having children until later in life, compared to previous generations.

Improving the lending process to appeal to millennial home buyers

Housing market inventory in the United States reached a record low of 860 thousand in January of 2022, with estimates that the U.S. market needs over two million new homes to meet buyer demand. According to the latest Zillow Home Price Expectations Survey, home availability, especially for first-time home buyers, will not rebound to pre-pandemic levels fully until 2024. In the meantime, the market is showing signs of cooling down for buyers. New house listings have risen by 8% in 2022, and sellers are lowering asking prices, with rising mortgage interest rates in mind.

As inventory rises, and prices become more attainable for millennial home buyers, the lending process will become a critical point of appeal for lenders. An optimal approach will be to cater specifically to the kind of experience that millennials want. Traditional business development strategies that were either effective or at least tolerated with generation X and boomer cohorts will yield limited results with millennials.

Millennials have been labeled the mute generation, because they simply don’t answer their phones nearly as often as previous generations. They prefer to communicate and approach the mortgage process via online searching, digital banking, email, or even instant message, among other digital methods.

Millennials want an online-focused customer journey promising speed, ease of use, and convenience front and center, both for desktop and mobile. For lenders, this means embracing automation in order to expedite as much of the process as possible, providing the ability to generate strong millennial customer loyalty. For first-time buyers, in particular, this presents a solid opportunity to create a long-term relationship, which can generate repeat business for future mortgage applications and cross-selling opportunities into related products, such as home insurance.

Preparing for a millennials home buyer’s market with an automated mortgage customer experience

Traditional lenders face rising competitive pressures from alternative lenders that put machine learning, automation, and advanced data capabilities at the core of their loan products. Moreover, they also face the prospect of falling behind competitor financial institutions that are implementing their own automated mortgage processes. As market conditions shift to be more favorable for millennial home buyers, now is the time for lenders to embrace intelligent document automation to help streamline their own mortgage loan procedures.

Discover how Ocrolus accelerates mortgage decisions with automated document onboarding and trusted data.