The 9am to 5pm work week and diamond sales are only some of the things millennials have been accused of “killing.” Now, the Federal Reserve has found that the housing market is the newest addition to the list.
According to a new report by the Fed, part of the recent decline in home ownership among young Americans can be attributed to the historic amounts of student loan debt that today’s college graduates are taking on.
Based on data analyzed in the report, homeownership among people ages 24 to 32 fell from 45 percent in 2005 to 36 percent in 2014, a difference of nine percentage points over a nine year period.
While multiple factors contributed to this decline, the report states that two percentage points, almost one fifth of the total, were directly tied to student loans. In other words, over 400,000 student borrowers who could have owned a home by 2014 didn’t because of their ongoing student loan repayments.
There are two primary reasons for this housing ownership decline among young Americans that directly result from student loans.
First, for each payment a borrower makes toward their student loans, that same amount of money is not being put towards a house. Therefore, as long as young adults remain in repayment on their student debt, the ability to purchase a home is significantly postponed.
Second, for those borrowers who are unable to make their monthly student loan payments, their credit score drops, making the chances of qualifying for a mortgage much more difficult in the future.
“This finding has implications well beyond homeownership, as credit scores impact consumers’ access to and cost of nearly all kinds of credit, including auto loans and credit cards,” report authors Alvaro Mezza, Daniel Ringo and Kamila Sommer wrote. “While investing in postsecondary education continues to yield, on average, positive and substantial returns, burdensome student loan debt levels may be lessening these benefits.”
Collective U.S. student loan debt topped $1.5 trillion in 2018, officially surpassing the debt levels of both credit cards and auto loans. It now claims second place for the highest debt category throughout the country, second only to mortgage debt.