Forget what you heard a few years ago about Millennials. They are not slackers or living on their parent’s couches. They have grown up. 40% of them have children. Their average annual incomes exceed $56,000 and when it comes to marketing mortgage products, the big number is that Millennials represent 46% of first time home buyers.
Where are They Moving?
This generation has a strong desire to chase the American dream, despite being hindered by student loans. In order to achieve what past generations have, they’ve got to do things differently. That means exiting large, expensive cities — and the banks and mortgage companies that serve them — in favor of so-called secondary markets. And so far, some of the most appealing markets appear to be in Rust Belt cities that have rounded the corner for revitalization.
According to Jeremy Sopko, co-founder and CEO of Nations Lending Corp. headquartered in Independence, Ohio, an analysis of origination and lending data at Nations Lending shows that not only do millennial buyers make up more than 46% of new U.S. home buyers for the first two months of 2019 — the largest generational segment of the market for the fourth year in a row — but their movement out of traditional big cities and into secondary markets is on the rise. From 2017 to 2018, millennial buyers surged 24% in Rust Belt cities while purchasing in larger cities like Dallas, Chicago and Houston fell more than 14%.
All of this is happening while the number of local community banks serving these soon-to-be flourishing real estate markets is plummeting. Fewer than 5,500 local banks existed in the U.S. as of last year. Small- and medium-sized lenders also continue to consolidate with larger institutions.
Build a Local Presence
With technology as the staple diet of the millennial generation, into which more than 80 million people in the US have been born, it should come as no surprise that millennials are largely rejecting the traditional banking experience that previous generations have embraced for so long. Online and mobile banking comes naturally to this cohort. It’s not even considered a luxury, but a basic expectation. However, it comes at the expense of abandoning the relationship-based, retail branch experience.
But Millennials like small businesses and the customer service that comes from someone knowing your name. Capital One’s latest venture – the Capital One Café – is an effort to bridge this disconnect, and market a relationship-based banking experience to millennials in a manner that speaks to them and their needs.
A local presence does not necessarily need to be a cafe, although informal meeting places with good wifi is important – but finding authenticity in brick-and-mortar locations are a natural step. Remember that building local presence goes way beyond merely renting office space. In some of these new markets, there’s a sense of Main Street authenticity. Mortgage companies need to become part of that local presence. Be sure to support the community when possible, either financially or by participating in local organizations like the Chamber of Commerce and PTA.
Banks looking to capitalize on this shift need to focus on trust. Millennial homebuyers want straight-shooting honesty and authenticity, and that’s been proven time and again when industry professionals come to market with clear, concise, no-gimmick messaging.
This is part of the millennial generation’s deep distrust of big banking institutions, which comes in response to the 2008 financial crisis as well as scandals like the ones Wells Fargo has fought through in recent years.
When local and regional lenders invest in these new millennial markets, they should do so with an omni-channel approach. Treating digital as the end all, be all to success with this demographic is a huge mistake. Digital is just one of many marketing channels. Lenders need to experiment with direct mail, which has been proving highly effective with the millennial cohort. Statistics show that 84% of millennials go through their mail each day. Also, now that there are fewer pieces in the mailbox, response rates have increased up to 5.3% versus a high of 0.9% for digital.
When it comes to trust, direct mail is considered to be the most trustworthy marketing channel. Email marketing is a negative, with 63% using digital ad blockers. The USPS informed delivery digital version of direct mail is the only email delivery system that resonates with this group.
With Millennials, the message counts. But it must be done in a natural way. Millennials don’t want some faceless voice advertising to them by the big banks. Choose a clear, simple message that’s easily understood and skips the fine print.
Another thing – banks and mortgage lenders who espouse social responsibility are the ones millennials will choose to work with.
New Research (published 4/30/19):
Millennial home buyers have become more likely to use savings from their primary paychecks to fund down payments as wages have increased. Almost three-quarters or 72% of respondents used earnings from their main job as a down payment source, according to the March survey by Redfin. A year earlier, the share of respondents identifying their primary paychecks as a source of down payment funds was 3 percentage points lower at 69%. Banks and mortgage lenders can use this information to help determine down payment amount.