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It’s not the avocado toast eating into millennials’ down payment budgets.
A recent report from the central banking system found that the dramatic rise in student debt is at least partially responsible for the drop in homeownership levels, the Wall Street Journal reported.
Homeownership in the U.S. has fallen significantly since its pre-recession peak, with the rate among young people lagging particularly far behind.
The Fed study, which examined a period from 2005 to 2014, found that homeownership among people ages 24 to 32 fell by 9 percentage to 36 percent. The Fed attributed two of those percentage points, or a fifth of the total decline, directly to student debt. That’s the equivalent of 400,000 borrowers who were unable to buy a home by 2014 because of student debt.
There are two ways ballooning student loans, which have now reached $1.5 trillion, are keeping buyers off the market. Borrowers who fell behind on their debt payments had more trouble qualifying for home mortgages, while those who did manage to meet those student loan payments were left with less disposable income to save on a downpayment.
In a separate paper published on the same day, the Fed also found that student debt is pushing more millennials from rural areas to cities, accelerating rural decline.
Nevertheless, millennials may still have a shot at buying a home. In the years since 2014, the end of the period examined by the Fed, mortgage investors like Fannie Mae have been experimenting with initiatives to make it easier for debt-burdened former students to purchase their first homes.
Since hitting a bottom of 62.9 percent in 2016, the national homeownership rate has been trending upwards for the past two years. Freddie Mac recently predicted that homeownership among young adults could rise as high as 60 percent by 2025, or 56 percent in a less optimistic scenario.
Over the past decade, student debt has risen to account for more than 10 percent of all debt in the U.S., surpassing both auto and credit card debt to become the nation’s largest debt category. [WSJ] —Kevin Sun
Source: The Real Deal Los Angeles