Unlocking the Mysteries of NextGen Homebuyers
Episode 24 – May 16, 2022
Kristen Messerli of Experience.com discusses what prevents Millennials from entering the housing market and what reassurance and education they need.
Kirk Willison, Arch MI’s Vice President for Government and Industry Relations:
Millennials are now the dominant demographic cohort purchasing — or at least trying to purchase — homes in the United States. They may have come later to the homebuying process than previous generations, but their desire to own a piece of the American dream is just as strong. Few people know the characteristics of these NextGen homebuyers like my latest guest on the Arch Mortgage Insurance PolicyCast.
A Millennial herself, Kristin Messerli set off to college with an expectation of becoming a missionary. While she ultimately changed course, she retains a missionary zeal for homeownership. And in her role as Vice President of Strategy for Financial Services at Experience.com, she helps the mortgage industry better understand how to reach borrowers and exceed their expectations. Together with the National Association of Minority Mortgage Bankers of America [NAMMBA), Kristin has twice published the “NextGen Homebuyer Report” detailing the wants and needs of today’s and tomorrow’s young borrowers. I spoke with Kristin about how she found her way into the mortgage industry and what we can learn from the NextGen studies.
Kristin Messerli, it is great to have you here. We’ve been trying to do this for a long time and my schedule and then your schedule and all kinds of things cropped up. Glad to have you here today.
Kristin Messerli, VP of Strategy for Financial Services at Experience.com:
Thank you so much for having me. It’s great to finally be here.
I always like to begin a chat with my guest about kind of how they got to where they are, and there’s not a soul that I know who actually began in the mortgage industry with an aim to get into the mortgage industry. I started in journalism, then worked on Capitol Hill and then found my way into the public policy area. You have a particularly interesting issue in that you actually set out to be a missionary and you then you moved into the social expertise. I wonder if you could just kind of tell our viewers a little bit about your background, because I think it’s rather unique for the mortgage industry.
Well, actually, like a lot of people probably in this industry, my dad is in the industry, so I grew up in the space. Of course, when I was really little, I was like, “I’m going to take over his business someday.” And then as I got older, I was like, “I’m going to run as far as away from this industry as possible” — being a rebellious teenager. But … I think it’s really funny coming back around. And I definitely think that my experience as a social worker has really led the way to what I’m doing today. But [when I] I set out, I was a social worker for quite a while. I worked a lot in [leading] some outreach initiatives in college, and then I became a social worker working with homeless youth and then immigrant communities in Oklahoma.
And in that area, I started doing a lot of financial education and housing coordination, and that was kind of the beginnings of thinking about what Cultural Outreach [her former firm] could become. So, I started on that path and then I realized that there was just a gap in the market where people in banks and lenders were trying to better understand diverse markets, and a lot of them were also trying to understand my generation. So, I started doing more education and trying to bridge that gap. And that’s where I came up with the idea of Cultural Outreach. That definitely took a lot of different shapes and evolved over time, but it was really birthed out of that idea of trying to bridge the gap there.
So now you’re in a role at Experience.com as head of a lot of the strategy involved in financial services. How has that background with not only your social work, but with Cultural Outreach, really influenced what you’re doing now?
Well, first of all, it was the first thing that really caught my eye when I realized I wanted to move out of Cultural Outreach. I sold it to NAMMBA, but what has been a throughline with everything I’ve done is giving people a voice. And when I saw this opportunity at Experience.com and started talking with our CEO, Scott Harris, about it, I realized that this is an opportunity to truly amplify the customers’ voice in a really pretty extreme and automated way. I think that’s where my interest came in and what I’m excited about giving — helping lenders be able to leverage that [customer] voice to help them build their business and help them use it to improve their business. And then on the borrower side, of course, giving borrowers the opportunity to have their voice be heard, and I think there’s a lot more that we can do with this as we grow.
So, when you were with Culture Outreach and in conjunction with NAMMBA, which is the National Association of Minority Mortgage Bankers, you helped produce a NextGen survey for the last couple years. And I guess you consider yourself kind of part of that NextGen, but for people to begin, what do you define as the NextGen homebuyer?
People have different definitions of this. The way that we defined it for the report was ages 22 to 37, and then we got really hyper-focused on the segment of homebuyers … Those were people that were about to buy a home or very recently bought a home so that we could take a look at what people that are in the market are actually saying about their experience in buying a home.
And are you finding that this cohort of people, are they really different than previous generations, and, if so, how are they different?
I think that there are always similarities and there’s always distrust, which is a big theme that I bring up. But I think the fact that the NextGen cohort entered the market or entered adulthood during or right after the  Financial Crisis has made a really big impact on our worldview and our view of financial services. I think that some of the differences around our technology usage and where technology was going at the time of us entering adulthood and then getting into the market really changes the way that we view homebuying and how we approach it. And then also thinking about just the rising cost of housing and the affordability factor has made a big impact as well as student loan debt and some other things that weren’t in place at the time of my parents’ generation and my grandparents’ generation.
Previous generations have kind of looked at homeownership as the way to build wealth. Is there still that feeling or is it like “I saw too many people get burned and I’m really only looking for a house or shelter” these days?”
Yes, there is definitely that understanding, a general understanding that homeownership will help you build wealth. I think that there’s still a lot of skepticism at the cost of housing today [and] whether or not it is a good idea to buy … It’s interesting because I’ve interviewed hundreds of homebuyers in the NextGen consumer [segment] and then we surveyed thousands of actual homebuyers. And the people who have not entered the market still say they want to enter the market. They’re just skeptical or concerned over whether or not it’s a good time to buy. And it’s interesting because I went through this even as I was buying a home about a year ago.
I was laughing at myself as I saw how much I aligned with the research that I’ve been doing, but I just couldn’t understand whether it was actually a good idea to buy in [Los Angeles] when housing prices were so high. And it took until I’d gone through several rent-versus-own analyses I could find online. I made my own spreadsheet. I used a mortgage coach [to calculate] rent vs. own. And it wasn’t until I really got clear on the numbers that this made sense for me to buy … It really added a lot of passion for me to make that kind of understanding known to lenders and help them provide that kind of education.
Ultimately, this generation really needs to feel empowered with those kinds of logical … or that kind of information so that we can make those kinds of decisions for ourselves. And we’re not just putting our trust in someone else about the biggest financial decision of our lives. And that someone else, being someone who is either a parent who doesn’t understand what the housing market is like today … or someone in the industry who, of course they want us to buy a home. I think we have to have that kind of information in order to feel confident going into the market.
So are the NextGen buyers educated on this? And if they aren’t, who is doing this kind of education? Because what you’re describing is a little different than what we hear as kind of the traditional homeownership counseling that HUD or others want people to walk through.
There are different layers of counseling … I talked to people about this a lot, and I think … I would like it if every lender would provide a homeownership plan for anyone and just make that known as saying, “Hey, no matter what stage of the process you’re in, if you want to buy a home someday in your life, let me help you make a plan.” It could be a really short one and it could be an automated one they have online. But I think that so many people just don’t know that they could enter the market. I should have bought a home out here years ago, you know? But I think that if lenders could provide that type of counseling, it doesn’t need to go the extra mile, really, other than helping them outline what it takes to buy. Then, people often will be ready to buy and not realize that they could, and they would refer a lot of people.
This is for people who are already at that stage. But I definitely think housing or financial counseling and housing counseling is a really crucial component to all parts of our society as well.
I wasn’t too surprised to hear or to read in your report that … one in four respondents said that they really lacked sufficient knowledge about the homebuying process. There does seem to be a significant number of first-generation homebuyers among this cohort.
Yes. There are a lot of first-generation [homebuyers], but then even amongst people who have parents who have bought homes, there’s still a feeling of lack of understanding. And in our 2020 report, we saw that one in five said that they were not confident in any step of the homebuying process. So that’s a huge amount of people that said every single step of the way they didn’t have any confidence in their knowledge. But I think that even for people like myself who grew up in the industry, I still wasn’t confident. I still didn’t feel that I had a clear understanding. I’ve been licensed as a loan officer before. I have the knowledge, but it’s the biggest financial purchase of your life and there’s a general feeling that there’s some stuff I’m going to miss along the way, you know?
And I think that’s where that idea of having guides through this process becomes really crucial. Leveraging technology in a way that helps empower consumers is really crucial. But even amongst my friends who have parents who owned homes for the most part and are doing really well in their careers, there is still this feeling of saying, “I have no idea what to do.” For a lot of them, what happens is that they will say, “Okay, I don’t know what to do, but I do think I’m ready to buy and have a chunk of change, set aside.” When they go online and start to do some research, they get really overwhelmed and decide, you know, I’m just not going to do this right now. A lot of people back out as soon as they start to enter [the process] just because of that feeling of being very overwhelmed.
You know, it isn’t only the young, I have personal anecdote on my situation because I was in the process of refinancing my current loan and I had to have a HELOC subordinated, and the company that had to subordinate it was taking so long and I was so frustrated about why it was taking so long. I could never get to the person in charge of it, and I ended up actually losing my lock on the other original. So, it isn’t just the first time [buyer] who gets stuck and doesn’t know where to go to get the answers.
The other thing I was a little concerned about here being in the mortgage industry is that fewer than one in three of the respondents felt that the lenders were completely trustworthy and reliable. How was your own experience?
That was fascinating to find out. And when I circulated that information among my friends, they also said, “I’m surprised it’s that high.” [My reaction was] it’s so interesting that we have this much skepticism in the market. But, it was only one in three who said that lenders were trustworthy or reliable. And I think it just reflects that level of distrust. And I certainly felt this … even friends in the industry would say, “Of course it’s a good idea to buy.” My thought is of course you would say that because you feel like there’s a potential sale to happen there. We’re worried about getting sold in that way, but I think that skepticism is a huge hurdle to overcome and certainly something that we need to think about as an industry to improve that trust through information, relationships and guidance.
How do the NextGen users or potential homebuyers consider technology as an aid in the homebuying process? Are they comfortable using it? Or is it something that confuses them and maybe worries them a bit?
There are a lot of people in all generations that want to use technology, and there’s some in each that don’t. But for the most part in this segment of homebuyers, they absolutely feel more safe with using technology. And I’ll say even for myself, when I first was referred to a loan officer from my Realtor®, I had a conversation with her. She was starting to take the app over the phone, and I thought, I just don’t want to do that. I want to have a point of sale. I want to be able to quickly connect my bank account. I feel safer about that. That’s how I have grown up budgeting and using any kind of financial app is connecting it with my bank account. So that’s something that I think is very important for the majority of this generation … to be able to utilize technology in that way and utilize technology for social proof as well. When we choose to work with someone, we want to Google search them and see what other people have said. So, there’s a lot of validation and security in different types of technology.
Your work with NAMMBA shows that you really are interested in trying to reach out to every demographic in the market. Did the NextGen survey end up showing differences between how people of different ethnic groups or racial groups looked at the benefits and the cost of homeownership?
We didn’t see differences. We didn’t evaluate differences in cost and benefit. I think that would be interesting. I’m working on a new survey that will look at some of that this year. But the differences we did see were around education and the myths of homebuying. So, we saw in the Latino community and Black and African-American communities that they were more likely to think you needed 20% down to buy a home and more likely to think you needed to be a W-2 and have traditional work. I think that there were a few others like that in the report that we highlight that show differences in demographics. If you look at the full report, we break it down by demographics [with] some of those top myths, but it basically came down to education.
One thing that we didn’t look at yet for 2021 is a gender component. And that was a really interesting thing that came up in 2020 — we saw a big gender gap, which surprised me a lot. We’re still exploring the reasons why. I expected gender gap in previous generations because of the wage gap. We’ve made so much progress, but in this generation we still saw that men or male respondents were three times more likely to be saving or investing in the stock market, investing in HSAs. Every single thing that we measured, they were significantly more likely to be doing that. And we controlled for whether they had children and we controlled for their income level, so we were removing wage gap type stuff. We were controlling for their parents’ socioeconomic status and anything we could come up with.
The only thing that was statistically significant was that men were 85% more likely to have been taught about financial wellness as children. Or they were taught about creating a budget as children, more so than women. I think that’s definitely something that has changed or is changing in our society, which I think is very positive. I don’t think that that’s the only reason that we saw that gap, but I think there are some components around home and investing habits. Single women are still the second-largest cohort of homebuyers in America. It’s interesting to look at the breakdown of demographics and I want to continue to explore that.
For the final question, we always like to have some policy discussion in the PolicyCast. The GSEs, Fannie Mae and Freddie Mac, have really been charged now with creating equitable housing plans to build and essentially build homeownership opportunities among those who have been traditionally left out. And that would include Blacks and Hispanics and certainly Asians in this market. What information would you say is kind of within your studies that they and lenders ought to be looking at to better understand these markets and help them better reach them?
I definitely think across the board, lenders should be looking at each of those markets. I mean over 50% of Gen Z identify as ethnic minorities. Our consumer base is becoming more diverse and we are still seeing a huge gap … when it comes to those differences across minority groups. I think the Black and African-American community really needs to be specifically looked at for improved outreach, including the Latino community and definitely in Asian immigrant communities. [Each group] is looking at the people that are most trustworthy in those communities to partner with and deliver that kind of education. I think that’s a big thing. That’s really a lot of what Cultural Outreach had started on was kind of bridging that gap through community leaders.
I know that a lot of the work that we’re seeing in the industry is beginning to look at that. But I think those partnerships can help a lot in disseminating information and building trust in those segments. And then just across the board, being able to look at all of your materials and making sure that you’re reflecting those markets and connecting with those markets so that we are continuing to become more and more inclusive [as an industry]. It creates business opportunities and a lot of growth opportunities for lenders as well.
Well, Kristin, in the second part of our PolicyCast, we’re going to ask questions about how you and your role at Experience.com are actually trying to work with lenders, educate lenders about how they really can meet the new expectations from the NextGen and their homebuying. But thank you very much today for taking the time, and I look forward to talking to you very soon.
Thank you so much. I look forward to it.
About Arch MI’s Capital Commentary
Capital Commentary newsletter reports on the public policy issues shaping the housing industry’s future. Each issue presents insights from a team led by Kirk Willison.
About Arch MI’s PolicyCast
PolicyCast — a video podcast series hosted by Kirk Willison — enables mortgage professionals to keep on top of the issues shaping the future of housing and the new policy initiatives under consideration in Washington, D.C., the state capitals and the financial markets.
About Kirk Willison
As VP of Government and Industry Relations for Arch MI and a mortgage finance expert with more than 25 years in government relations, Kirk speaks candidly with an array of the most influential industry and policy thought leaders in the nation.
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