| The Millennials are at it again, disrupting another staple of American society and bending legacy establishments to their inexorable will.
If the rapid pace of economic and societal change engendered by this particular generation feels unprecedented, too few people recall the ’60s. What is different this time around is how quickly the establishment is responding the changing needs of today’s young adults.
Though the gig economy has always been part of the nation’s workforce, in recent years it has grown significantly. Between 20 percent and 30 percent of the workforce participates in the gig economy, and that number is expected to grow. Last year, Intuit, owner of TurboTax, estimated that 34 percent of the workforce earned money in gig pursuits and projected that number could rise to 43 percent by 2020, Ken Harney reported in his column last week.
Gigs used to be called side jobs and were traditionally used to supplement the income of an individual or a household. Increasingly gig workers are stringing together a series of them to create a livable income. It can be lucrative; it can also be extremely unpredictable.
Mortgage lenders don’t like unpredictable income streams. Realtors are desperate to get more Millennials into the housing market. And because there’s money to be made, something must be done!
To the rescue comes, oddly, Fannie and Freddie, those bastions of the establishment. The GSOs are currently pursuing pilot projects to help improve access to credit for these workers, Harney reports. The challenge is that the GSOs’ solutions must produce high-quality loans with low default risks that are automatable. (Another symptom of market disruption: electronic underwriting systems.)
Whatever solution Fannie and Freddie come up with, additional insurance fees should not be part of it.
One of the greatest misconceptions about buying versus renting is that a mortgage payment is cheaper than a monthly rental fee. And that’s usually true: a mortgage payment of $1,200 will get you a lot farther in a house in the suburbs than it will an apartment in the city. Rarely does anyone mention to a potential buyer that there’s a lot more to a monthly payment than the actual mortgage.
They will also have to pay taxes and, if it’s a low down payment loan, private mortgage insurance. PMI payments on a Boston-area mortgage can be hundreds of dollars a month. A monthly payment of $2,000 for a house in the suburbs – where the buyers are also responsible for maintenance and repairs – suddenly looks less appealing.
Of course there’s nothing for them to buy in Greater Boston anyway. But that’s a problem for another day.
There’s a lot of would-be homebuyers sidelined by their gig income, and a lot of money being left on the table. If Fannie and Freddie can pull it off, a path to homeownership will open for Americans who would have otherwise been shut out of the market – an outcome that benefits us all.
