Still feeling the effect of the recession on their own and their families’ finances, millennials are gobbling up all of the information they can find on their mobile devices to plan for their futures, including when they would like to buy a home and what kind of home best suits their unique lifestyles.
This is according to a recent assessment of millennial homebuyers by Bank of America (see the snapshot embedded bel0w).
However, the mortgage lender noted that millennials are all about balance, thinking of today and tomorrow and not letting goals for one take precedence over the other. So while they are preparing for the future and saving early for retirement, some are also willing to selectively take on debt for higher education and for experiences.
Seeking a better understanding of what millennials want, and believing that this generation’s attitudes toward finances also provide important insights into the broader economy, Bank of America created its first year-end “snapshot” of millennial behavior. To create the Year-End Millennial Snapshot, the lender asked research firm Kelton Global to analyze data from seven consumer research reports published throughout 2015.
‘Armed and dangerous’ with information
Having grown up with technology at their fingertips, millennials know how to quickly and easily access information about the homebuying process and shop around for the best mortgage deal, Bank of America’s assessment concluded.
Millennials are especially reliant on mobile technology for real-time information and financial transactions. About 59 percent of millennials surveyed said they use their bank’s mobile banking app, the highest users of any generation polled. Almost three-quarters of millennials said they access the app at least a few times per week, if not more often.
Of those using mobile banking, 74 percent said they receive mobile banking alerts and notifications, and 65 percent use mobile check deposit.
Millennials are also using online mortgage calculators and other homebuyer resources to begin their homebuying process, said Ann Thompson, regional sales executive at Bank of America.
“We see they are more prepared and educated,” Thompson said. “They come in armed and dangerous with information. They have done a lot of research ahead of time, so when they come in to ask questions, their questions are a lot more complicated. They already know what mortgage product and terms they want.”
However, despite being able to easily access the information they want, millennials have trust issues, she said.
“They want to hear what you have to say and ask complex questions, but then they want to go back and validate it,” she said. “They are not in a hurry to make a giant financial decision. They want to do so very carefully and thoughtfully.”
But despite all of the resources millennials are able to access about mortgage shopping and the homebuying process, Thompson said she is concerned that some of the information may be incomplete or even incorrect.
“They can do a lot of the preliminary work, but they should know that they are still going to need to work with a realtor and a lender for the rest of the information,” she said. “For example, a lot them don’t know they can get virtually their entire downpayment as a gift from their parents.
“Some medical students have enormous student loans, but we don’t look at that when considering them for a mortgage. Mortgage programs are always expanding, and what’s out there in terms of inventory and price is always changing. What you knew a year ago or six months ago may not be the same today. You have to be current, and the only way to do that is with a mortgage and real estate professional.”
Still suffering from post-recession stress
The financial behavior of many millennials is the direct result of the financial market collapse and recession, according to Bank of America’s polls, which concluded that 40 percent of millennials learned from the experience of their parents’ successes or failures to make positive financial decisions.
More than half, or 51 percent, said the recession had a direct impact on their family’s overall finances; 67 percent said their parents had to cut back on spending or saving; and 27 percent observed their parents experience a drop in retirement savings.
“Millennials grew up and came of age during a pretty devastating time,” said Thompson. “For some of them, their parents may have been banking on using the equity in their homes to fund their college tuition. Their parents may have experienced foreclosure, job loss or job reduction. This is a generation that observed all of that. That’s why they are careful to do their homework — it’s, ‘that is not going to happen to me.’ I think that’s great.”
According to Bank of America’s assessment, millennials care about managing their money and are actively trying to stay in control of their finances each week. Three-quarters said they pay their bills on time, and majorities say they spend less than they earn and regularly set money aside for savings.
But about a third of millennials said the recession affected them personally, with 46 percent finding it difficult to find a job, and 21 percent reporting that it has been impossible for them to find a job. As has been widely reported, Bank of America noted how massive student loan debt is impacting this generation more than any other.
“Most people with student loan debt said it has impacted their ability to save for a downpayment. At the same time, those who are renting are struggling with high rental rates,” Thompson said. “We are seeing these groups stretched as far as they can be in terms of maximum debt-to-income ratio.”
Not willing to sacrifice quality of life
However, despite their financial challenges, millennials are not putting their lives on hold or sacrifice their quality of life. Many who are now in their late 20s to mid-30s are starting families, running small businesses and planning for future expenses, Bank of America concluded.
“What’s really interesting about millennials is that we’re seeing a lack of willingness to give up certain things in order to be ‘house poor,’” Thompson said. “That is very different than prior generations. They don’t want to let go of a nice wardrobe or a travel fund, or however they determine what fun means to them.”
In addition, millennials also favor the flexibility of having choices of where they want move or work, and have different priorities in terms of the kind of housing they want, Thompson said.
“When I was lending 10 years ago, legions of people were willing to have a two-hour commute just to be able to get into a home and have a yard. That has changed utterly,” she said. “Now, proximity to work or public transportation is absolutely a priority. But so are amenities. Millennials want easy access to social activities, the ability to walk to a place to shop, eat or go to a bar to meet friends.”
To that end, millennials are pushing gentrification of many urban areas, and prefer smaller homes, homes they can renovate, homes with energy-efficient features or technology and turnkey condos, Thompson said.
“They are not afraid to go into a dodgy, urban neighborhood,” she said. “They want to make it cool and be the first to do it. It’s no longer about the big home with the white picket fence and yard. They are looking for homes that will suit their lifestyle.”
With all of these unique characteristics, the mortgage and real estate industries need to adapt their strategies to meet the needs of millennial homebuyers, Thompson concluded.
“The feedback we have received from millennials is that lenders and realtors tend to want to talk and talk. That rubs millennials the wrong way and erodes trust because they feel like they are not being listened to. They like to be heard when they say, ‘this is what I want and this is important to me. We need to tailor our conversations with them to show them we are listening,” Thompson said.
