Lenders must market to military service members to maximize production

Mortgage

Long-awaited, spring has finally arrived, and with it a number of prospective homebuyers. May, June, July and August are the four busiest home-selling months, and reportedly account for nearly 40% of an average year’s total home selling.

Given the importance of the season, mortgage originators would be wise to look at industry forecasts to know what to expect. Several patterns for home buying seem to stand out this year, but it’s worth highlighting that this year’s trends are especially noteworthy with respect to a key demographic: military service members.

Perhaps the trend that is garnering the most attention concerns housing prices. Market forecasts are predicting that prices should continue to rise, dampening sales. House price growth is expected to outpace inflation and pay growth, but not to the degree that it has over the last several years. Home prices are expected to rise 3.7% in 2019. Perhaps even more worrisome are increasing concerns of a general downturn in the economy, lowering growth outlooks as well.

Military jobs, however, are often considered “recession proof.” While the business world deals with periodic cycles of boom and bust, the military carries on unfazed by this turbulence. As a result, the financial outlook of service members is largely independent of any exogenous economic trends.

According to a report by the Consumer Financial Protection Bureau, service members have consistently represented roughly 7.3% to 7.5% of all first-time homebuyers since 2006. This is especially notable when considered in light of the mortgage crisis, during which first-time homebuyers as a share of all mortgages dropped from 16% to 13%. If economic headwinds begin to prevail, service members as a share of first-time homebuyers should only increase.

Another predominant trend to expect this spring concerns an increased presence of millennials as homebuyers. Over the last two years, in the bracket of Americans between the ages of 28 to 31 alone, homeownership has risen from 27% to 47%, a staggering increase. In fact, over the next 10 years, the millennial generation is expected to purchase at least 10 million new homes.

With respect to service members, this trend is even stronger. A report by the National Association of Realtors shows that active service member homebuyers have the youngest median age of any demographic. Should an economic downturn skew service member shares of mortgages, this would result in an even stronger skew towards younger mortgage borrowers.

An increasing skew of service member share of mortgages would be great news for mortgage originators — delinquency rates for service members have become increasingly low. More than a decade ago, the average delinquency rate was over 13% for service members and the general population alike, with service members exhibiting a slightly higher rate. Now, both rates have plummeted, with service members even lower than the general population, slightly under 2%. Our best and brightest seem to be proving themselves to be as reliable as their reputation deserves.

With rising mortgage rates and home prices putting a damper on the market, mortgage originators may be right to lower their expectations for this spring. When markets stall or slow down, it’s useful to take stock of where safe havens can be found. Fortunately, for mortgage originators, service members have shown themselves to be not only reliable borrowers, but a steady demographic unfazed by independent economic concerns.

Undoubtedly reliable, service members prove to be counted on by Americans in more ways than one, regardless of the season.


Thomas Lynch


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