It’s common practice today for the residential team at Atlantic Stewardship Bank to prequalify millennials looking at buying a New Jersey home for a mortgage at the price of the home they’re looking at — as well as a figure that’s much higher.
Paul Van Ostenbridge, CEO and president of the bank, said that’s because it’s taken for granted that there’s always going to be a handful of bidders just like them. And that competition will send the home far over the listing price.
Call it a seller’s market.
Which is great for sellers, but not so great for the segment of society that could help push the economy forward: millennials.
“What we’re seeing now is much, much more demand in the local residential market than there is inventory,” Van Ostenbridge said. “That’s especially true for starter homes. And it’s proving to be very frustrating for younger first-time home buyers.”
This comes at a time when frustration with home buying among millennials should be on a downward trend.
Mortgage investor Fannie Mae has made sweeping changes to mortgage approval restrictions as it applies to the treatment of student debt as well as debt-to-income ratios, which is the primary reason young applicants get rejected.
The hope was that this would be a game-changer for bringing millennials into the homeowner fold. Especially since it is coming at a time when interest rates on mortgages are low enough for millennials to expect an affordable mortgage payment.
It just hasn’t proven to be true.
In practice, millennials are finding that an impossibly competitive, limited market for starter homes — in which prices tend to soar out of reach for younger buyers — is not conducive to buying an affordable Garden State home today.
It’s turning these younger would-be homeowners away. And it has New Jersey banks back to asking the same question that these institutions have inquired about for years.
“When is the millennial going to start buying homes?” Investors Bank CEO Kevin Cummings said. “This is still worrying me.”
Cummings blames, at least to some extent, the predisposition among younger buyers for homes not too far outside the urban orbit. The suburban homes of their parents, he said, just aren’t on their radar.
Tom Kemly, CEO and president of Columbia Bank, agrees.
“Although some places are bucking this trend, suburban houses overall are just not in favor right now,” Kemly said. “And with the younger home buyers definitely not interested in some of the really large, high-end homes that baby boomers are moving out of, that’s putting a lot of pressure on the high-end side of the market, too.”
As a result, sales of high-end homes have stalled out, while still remaining above the budget of many first-time home buyers. And this is happening at the same time that the price tags on starter homes are increasing.
Pat Ryan, CEO and president of First Bank, said the push-and-pull dynamic isn’t good for the prospects of millennials in the market.
“When you can’t get a decent starter home for too much less than $400,000 locally, that means, if you’re going with a 20 percent payment, you’re looking at putting $80,000 down,” he said.
“We’re talking about young people who may have good incomes, but also most of the time have student debt, and as a result haven’t been able to build up to that equity position.”
Even so, there’s more flexibility for these first-time buyers being introduced back into the mortgage approval process today than there was immediately after the financial crisis, which limited purchasing for student debt-carrying home buyers under certain payback plans.
And they’re coming at a time when interest rates have never been better.
Kevin Chittenden, executive vice president and chief residential lending officer at Valley National Bank, said the current rate is exceeding expectations, at least for now.
“Rates are very good — below 4 percent today — much lower than what we thought they would be,” he said. “There’s a good chance of those rates trending higher, making it more difficult for these home buyers, but it all depends on what happens in the economy and the political scene.”
With Chittenden and others anticipating that low interest rates will not last, it should, in theory, be a better time than ever to get into a home as a millennial.
“And it’s not that I would say rules are relaxing — it’s just that a little more common sense going into decisions now,” Chittenden said. “It doesn’t mean the (pre-financial crisis) no-income mortgage is coming back. Just that they’re starting to look at a whole customer instead of just one aspect.”
It’s one of the factors floating in the cloudy crystal ball of future New Jersey millennial home buying, which no one can see with much certainty.
“There’s some trends that are very good for these buyers, but, right now, it’s clear there has to be enough homes on the market to get them in there,” Van Ostenbridge said.