For decades, the American dream looked something like this: go to college, get a job, buy a home. More recently, that picture has changed, due to the increasing amount of student debt millennials are graduating with, the unstable job market and a shaky, but strengthening, housing market. In the second quarter of 2014, homeownership rates for people under age 35, the millennial generation, were at the lowest they’d been in decades — less than 36 percent, according to the U.S. Census Bureau’s Housing Vacancy Survey.
The lack of homeownership among Millennials doesn’t affect only them: It is expected to have a greater impact on the housing market in general.
What’s keeping millennials from buying?
While there isn’t just one factor that is keeping the younger generation from buying, one area in particular is having a great effect on their ability to buy a home, and that’s student loan debt. Currently, the amount of debt outstanding on federal and private student loans is over $1 trillion. Students who attend certain schools can graduate with a higher amount of debt than others. For example, 93 percent of students who attended Clark Atlanta University took out loans. The average debt burden per student at that school was more than $43,000 in 2012, according to U.S. News and World Report. The Atlanta school was on the list of universities and colleges where graduates have the highest amount of debt.
Student loan debt doesn’t only limit a millennial’s ability to afford a mortgage payment, It can also make it more difficult to obtain a mortgage. The mortgage rules that went into effect in January 2014 make it difficult for a person to get a home loan if she has a debt-to-income ratio above 43 percent. Of course, this is a good thing. Some people can’t afford to own homes and shouldn’t. High student loan debt, combined with lower wages, can also present a challenge to those millennials who hope to buy.
Impact on the market
The hesitancy of younger people to get out and buy is already affecting the housing market. In June 2014, the Washington Post reported that more millennials than ever are either living with their parents or renting. Fifty percent of people between the age of 20 and 24 lived with their parents in 2013, compared to less than 45 percent in 2003. Twenty percent of people between the ages of 25 and 29 lived with their parents, compared to 15 percent in 2003. Between 2005 and 2013, the number of people between the ages of 25 and 35 who rented rose by 25 percent.
The Washington Post also expects that the type of home millennials will live in and where they choose to live will affect the market. Greater amounts of debt and lower incomes may mean that younger people will be drawn towards homes in multifamily units, rather than single-family homes. Cities such as Atlanta may be a more appealing place to buy, instead of suburban areas.
Written By: Rhonda Duffy
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