Millennials and Gen-Zers were on track to have their strongest homebuying year ever — until the coronavirus dashed their dreams of owning a home anytime soon.
“Millennials who have been saving to buy a home are losing ground quickly, and the longer the COVID-19 crisis lasts, the more significant its effect on Millennials and members of Generation Z will be,” read Down Payment Resource’s April report released on Wednesday.
“Just four months ago, housing economists predicted that 2020 would be a red-letter year for young buyers who have struggled with record-high prices, a shortage of starter homes for sale, and vicious competition from investors and fellow millennials.”
Fifty-seven percent of millennials and Gen-Zers planned to become homeowners by 2025. However, worries about a longterm economic fallout have led a considerable portion of young buyers to either pause their home search journey (55 percent) or lower their budget (35 percent), the report said.
Although disappointing, pausing homebuying plans may be a smart move on the behalf of millennials and Gen-Zers, who have been disproportionately impacted by layoffs in nonessential and gig economy industries.
“Almost overnight, the outlook for young buyers turned from good to challenging,” the report said. “Younger workers suffered a disproportional loss of jobs when shelter-in-place orders shut down the hospitality, travel, entertainment, and other ‘nonessential’ service industries.”
“Millennials make up 40 percent of employment in higher-risk industries overall,” it continued. “Millions of younger workers are short-term, temporary, independent contractors in flexible jobs ranging from computer programming and software development to driving for Uber, working in restaurants and handyman services.”
Before the coronavirus, 47 percent of millennials and Gen-Zers had at least $10,000 in their savings accounts, and 16 percent had at least $100,000. However, with a shaky financial future, DPR said 40 percent of young buyers are now using those accounts to cover immediate, essential needs instead of a down payment.
On the other hand, 27 percent of millennials and 32 percent of Gen-Zers have empty emergency savings accounts and are relying on credit cards (30 percent of millennials vs 25 percent of Gen-Z) to float them through the end of April.
While relying on credit cards is convenient in the short-term, it may cripple young buyers’ ability to secure mortgage loans as lenders raise their standards to avoid the sub-prime mortgage crisis that spawned the Great Recession.
Over the past couple weeks, JP Morgan Chase, Wells Fargo, and U.S. Bank all released tightened lending standards, which require higher credit scores, lowered loan-to-value maximums, and more substantial down payments.
As a result, millennials and Gen-Zers are at risk of being cut out of the housing market, especially if they counted on being able to offer a lower down payment. However, DPR said there’s still a silver lining for young buyers in select markets with virtual down payment assistance programs.
“While some municipal and non-profit down payment assistance providers are temporarily suspending their DPA programs, we’re seeing a majority of local DPA providers — certainly outside of COVID-19 hot spots — remain open for business virtually and accepting applications,” the report read.
“Remote work may slow the application process in some cases, but many are doing all they can to support their pipeline of homebuyers as well as their real estate and lending partners.”
Read the full report below: