Ride the Surge with Equity Finance
Historically, young adults between the ages of 25-34 have made up the largest share of homebuyers. If not for unique economic challenges that trend would be unbroken today. In recent years however, homeownership in this demographic has taken a significant dip. According to the National Association of Realtors annual report, first time homebuyers made just 32% of home purchases in the past year – which is well off from the long term average of 40%. What’s even more worrisome is that of those who have purchased a home for the first time, only one third were Millennials.
Pent-up housing demand from this age group is huge. The front end of the millennial generation is now 35 years old. That’s older than the median age at which Americans typically bought their first home. Many deferred their dream during the period of global financial collapse. They are ready to buy if they can only make the economics work. Equity finance offers a solution.
This generation is the same as every generation before them. Owning a home is a rite of passage, a validation of their adulthood. Research continually backs up this observation. According to a 2,000-respondent survey published by Trulia, eighty percent of Americans between 18 and 34 say that owning a home is part of their version of the American dream.
The challenges are the same as they have always been: Affordability and attainability. The economics today though are daunting. Saving a down payment and earning enough income to qualify for a loan are what limit the generation from buying. And the ingredients for this economic challenge are the same as they have always been with some added twists.
On the financial qualification side of the equation, real wages have stagnated over the last decade. The 95% percentile in income realized a modest 2.2% wage increase. But the bottom 70% saw wage declines. In addition to the damper on wages, the explosion of student debt has hindered Millennials from home buying. Servicing student debt has impeded their ability to save for a down payment. Large balances and long terms on student loans also impact their debt-to-income ratios and ability to qualify for loans on home purchases.
On the price side of the equation, prices in the most populated and desirable markets have rebounded. They’ve not only reached their heights right before the global financial crisis, but also gone beyond them. Demand for this limited supply of homes is exacerbated by the influx of investment dollars. In West Coast markets, young families wanting to settle down have to compete with investors who are looking at housing stock as an investment vehicle rather than a home. Many of these investment purchases are in the lower middle price points of the market. Homes in this price range have the greatest demands as rentals and offer cash flow as well as appreciation potential to investors. Unfortunately this is the same area of the market that offers the easiest entry for the first time homebuyer’s starter home.
All of which makes qualifying for a home that will meet the needs of their family really difficult for Millennials.
Equity finance changes the equation entirely. Instead of competing with young families for home purchases, FirstREX’s REX HomeBuyer program invests alongside them. REX HomeBuyer will make an equity investment of up to 12.5% of the home’s price. With REX HomeBuyer, buyers can consider a wider range of home prices, lower their monthly payments and most importantly – put less money down. A true equity investment, the program requires NO interest or monthly payments from the homebuyer on the cash contributed. Instead, buyers share part of the appreciation of the home, if any, when they sell. Buyers using REX HomeBuyer need a bit more cash of their own (10%) than for government programs, but they can avoid paying mortgage insurance altogether. For Millennials with decent credit and sufficient income, REX HomeBuyer may be able to provide the perfect financing solution.