(More) millennial mismatching in housing finance

"Cheer up, millennials! It will become easier to buy a house... The snag? It’s because your parents are going to die"  -  The Economist (January 2019)

On the whole, a bit morbid even after considering the humor endemic at the grand old newspaper. Reality seems better, at least on this side of the pond. After a rather glacial ramp, home ownership rates amongst the cohort have picked up dramatically, to 47% for those between the ages of 28 and 31 according to a recent EY survey and in line with historical averages of recent prior generations. So, what's the big deal?

General improvements mask different market pricing dynamics

LendingTree recently published a ranked list of the top 50 metro regions for millennial homebuyers as defined by new purchase requests from the cohort as percentage of total new purchase requests. Disregarding the popularity contest portion of the data set...

• While "nearly one-fourth of all mortgage purchase requests in this period came from millennials," this list of metro regions encompassing 55% of the nation's population goes from 51% (Salt Lake City) down to 30% (Tampa).
• At issue is either the lack of millennial home shoppers outside the enumerated regions or LendingTree's customer acquisition strategy.

Assuming LendingTree's competence in this arena...

• We see a massive disparity between the requested loan amounts in the most and least expensive metros. The average requested by millennials in the top 5 most expensive metros is 3.3x that of a similarly populated group of the bottom 14 metros. ($457k v. $138k)
• Even if we let California, which accounts for 4 of the top 5 metros, secede along with New York City, we're left with a 2x disparity between the 7 top similarly populated non-CA/NYC metros and the bottom 14. ($276k v. $138k)

These rather sizable deltas cannot certainly cannot be explained away by income differentials. In fact, using a recent survey as rough benchmark, millennial incomes in the top states are less than 20% higher than incomes in the bottom states.

One-size-fits-all product amidst disparate needs

Most astute market actors would consider altering products to provide choices tailored to customer needs. KFC is renown for tailoring its menu to different tastes the world over. Domestically we even see this dynamic at play with mayonnaise.

Yet, home ownership is typically executed using one a single dominant product - the 30-year fixed-rate mortgage.

For most of the past century, the 30-year mortgage has had a role in helping improve the economic well-being of the US consumer, but it doesn't take much to wonder if the disparities highlighted above will materially impact the prospects of large numbers of those just entering the housing market.

Returning the the LendingTree data set, the differences in mortgage payments between those living in the top 5 most expensive metros and those in the bottom group are substantial - $28k v. $8k per annum using a 4.75% rate for illustration. And that's before accounting for the necessary down payment, which is 4.9x higher in the top group ($95k v. $19k).

When the average salaries even in the most expensive states are in the low $40k range, is it any wonder that "More First-Time Home Buyers Are Turning to the Bank of Mom and Dad?" But how about those who have no "Bank of Mom and Dad?"

Early last year, I penned my initial piece on Millennial Mismatching in Housing Finance. In the time since, the disparities have only become clearer.