Next generation of homebuyers emerges

Melissa A. Sepe is a Realtor for Westcott Properties in Providence. At 28, she’s also in the market for a home herself. Being a Realtor, she understands the process, though that doesn’t necessarily make it any easier to navigate.
Complications with the sellers have left her with two unsuccessful attempts to buy a house in the last six months. “Down payments and credit have not been a problem in my case but I can see where that is still a lot of money” for others to commit to, she said.
Sepe represents the next generation of homebuyers and for the past several years they have remained relatively silent in the market, many of them monetarily stunted by the Great Recession. However, there are signs that members of “Generation Y” will soon be back in the marketplace.
Generation Y, also called the millennial generation, or millennials, is loosely defined as those people born in the early 1980s. The global financial crisis has had a major impact on this generation, which has suffered high levels of unemployment among young people, especially in Europe.
Generation Y is the fastest-growing segment of today’s workforce. According to the U.S. Census there are about 70 million people in that age range, an important marketing demographic. In general, they are computer savvy, raised during the technology boom and expansion. They are “plugged in,” familiar with communications, media and digital technologies. About one quarter of the students with loans plan to move home after graduation to curb costs. They tend to be bigger spenders when compared to other age groups, especially in leisure activities and hobbies.
In late May, the Urban Land Institute of Washington, D.C., released a new study; Generation Y, America’s New Housing Wave. According to the report, 47 percent of the nation’s Generation Y members plan to purchase homes within five years, compared to 29 percent of the overall population. Ten percent of this age group anticipates buying homes within the next 12 months. “Generally, that population is just a little too young to be buying a home” right now, said Richard Godfrey, executive director of Rhode Island Housing. “This year our average borrower is almost 35 years old. “It takes people a while to get established; most people rent first because it’s such a big step. It is those on the older end [of that generation] range that are our prime target audience because they are first-time homebuyers.”
Those currently in the market have incentive and the means to get a loan at a low interest rate. The Federal Reserve System announced a rate of 3.49 percent for a 30-year Freddie Mac fixed loan on July 26.
Godfrey said that five years ago, economic circumstances favored those renting as opposed to owning a home. That tide has started to shift as falling house prices are becoming affordable, especially when compared to rising monthly rents caused by the large amount of people unable to afford a house. As the two costs converge, owning becomes more attractive.
But Godfrey says it’s much more than that. In general, they are in debt due to student loans and have difficulty finding a job in this economy.
But they are also well-prepared. Their knowledge of social media allows them to research the market without a Realtor, to shop without commitment.
Of course, the market needed to heal as well. Getting a mortgage is a more thorough process today than it was five years ago. “One thing that’s an advantage is that people in their 20s haven’t had enough time to get bad credit,” Godfrey said. “If they’ve kept current on their loans they are less likely to have credit blips. However, many programs have moved to higher down-payment requirements and that is an issue.” Fortunately Rhode Island Housing has several programs to help achieve those requirements. “My feeling is that home ownership is still desirable,” said Connor H. Dowd, president of Keller Williams of Newport, in Middletown. In general terms, prices have seen a downturn and many are looking at this as an opportunity. [Generation Y] might have been priced out of the market five years ago but they are coming back. The issue is qualifying for a loan,” he said.
Dowd said that banks are now overcompensating for past problems. “The pendulum has swung so far from the other side from six years ago, which got us into this mess, that even good credit risks are taken through a rigorous process of prequalifying and the underwriting process. Lenders are very particular, strict and cautious,” he said.
“I can only speak for myself but it seems to have picked up,” said Donna M. Andrews, chairperson of the Rhode Island Chapter of the Young Professionals Network and a Realtor at Prudential Gammons Realty. “Most of that age group is currently renting. If they qualify, with low interest rates and slipping housing prices, the situation is right for them to buy as long as they can remain secure.” She agreed that the loan process is more rigorous now than before the recession.
“Interest rates are excellent. … You have to have pretty strong credit in order to qualify for the better programs,” said Sepe. And be patient with lenders’ scrutiny, she urges.
“It’s all part of the process of buying a home now,” she said. •