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Know Your Customer: The Homeowner’s Dilemma and Why Generation Y Matters More Than Ever

By Mark Fleming

“Homeowners may feel imprisoned by the mortgage rate on their own home. So instead of moving, a nice kitchen renovation may seem more appealing."

It may be hard to believe, but the Great Recession ended more than 8 years ago. Since then, the housing market has slowly recovered in most markets. But, two very important things for the housing market have quietly happened as well -- mortgage interest rates have bottomed out and Millennials have grown up.

For perspective, consider that the housing market has experienced a long-run decline in mortgage rates from a high of 18 percent for the 30-year, fixed-rate mortgage in 1981 to a low of almost 3 percent in 2012. Today, five years later, mortgage rates remain just a stone’s throw away from that historic low point. This long-run decline in rates facilitated a turnover incentive engine that encouraged existing homeowners to both move more often and to refinance more often, in many cases refinancing multiple times between each move. First-time home buyers? Who needs them when move-up buyers and refinances generated the majority of real estate transactions.


Mark fleming pic jpeg


So, now what? Economists are supposed to give forecasts. Here’s mine. Mortgage rates will rise further. Shocking, right? 

Yet, this is more important than we may even realize because the housing market has not operated in a rising rate environment in almost three decades! No longer is there a financial incentive to refinance for most homeowners, and there’s more to consider when moving. Why move when it will cost more each month to borrow the same amount from the bank? Yes, you can re-extend your term for another 30 years, but there was a hope to have the mortgage paid off at some point, right? Homeowners may feel imprisoned by the mortgage rate on their own home. So, instead of moving, a nice kitchen renovation may seem more appealing.

No refinance business and fewer existing homeowners are moving. Wait, maybe we do need those first-time homebuyers! But Millennials don’t want to buy homes; they are saddled with student loan debt and are inexplicably behaviorally different than their Baby Boomer parents.

Mark Twain said “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

Maybe there’s more to this Millennial first-time demand story than we know for sure. After all, in the years ahead, first-time homebuyer demand may be our single largest source of business.


Mark Fleming is the Chief Economist for First American Title Insurance Company. Fleming will speak more in depth about this topic during a session titled "Know Your Customer: The Homeowner's Dilemma and Generation Why" at ALTA ONE in October. Click here to register for ALTA ONE.


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