Millennial House Buying & Student Debt
Posted On August 3, 2016
When are those Millennials going to start buying homes? This is a question many of us – such as economists, policy-makers, realtors, and homebuilders – keep asking. It is a well-known fact that homeownership rates among younger Americans have declined over the last 10 years. For example, in 2004 around 43% of people under the age of 35 were homeowners. That has steadily declined, to the point where in 2015 only 35% of them are homeowners.
Why the decline? Most analysts point to higher levels of student debt as the reason. In mid-July the White House jumped into the fray, with a detailed report on student debt, and its impact on the economy. Leaving aside the political implications of some of the report’s conclusions, the report made an important distinction:
- For some students (typically those who have completed their degree and who have gone to 4-year schools) debt is not necessarily a bad thing. Their education has helped them get good jobs, which in turn equips them do things like buy homes.
- For others (typically those who went to 2-year or for-profit schools and/or never completed their degree) their education has not translated into better jobs – which means that student debt remains more of a burden. This type of student debt holder is also more likely to be delinquent in repaying the debt.
So what then is the overall impact of student debt on home buying? The short answer is … it depends.
Student debt has not held back the first type of student from buying a home – even though they typically have more student debt than the second type. They are buying homes at a much higher rate than the second type of student debt holder – whose debt delinquency is a result of more generally limited financial resources. These findings are confirmed by our own analysis of the Federal Reserve Board’s 2015 Survey of Household Economics and Decision Making. The homeownership rate among Millennials with student debt greater than $20,000 is actually slightly higher than it is for Millennials with student debt less than or equal to $20,000.
So why are we worried about Millennials and home buying? Yes, people younger than 35 currently have homeownership rates that are less than those of older people. But that has always been the case. And let’s ignore the early 2000’s when we make comparisons (when homeownership rates for all ages peaked during the housing bubble). If we compare 1995 rates to 2015 we see that the rate declined by about 3.5 percentage points for people less than 35 years old. But the rate declined by almost 7 percentage points for people aged 35-44 and about 5 percentage points for people aged 45-54. That’s right … homeownership rates have declined more for older people than they have for younger people.
And … remember that many Millennials (who are currently between the ages 16 to 36) are still in school. Millennials are also staying in school longer than previous generations did. So it’s not the case that Millennials don’t want to buy homes. They do want to buy – a recent TD Bank survey showed that Millennials were much more likely to have recently bought a home than any other age group. And they also indicated a much higher willingness to buy in the near future than other age groups. Its just a matter of them taking longer to do so than other generations, as their entry into ‘adulthood’ is taking longer than other it did for GenXers and Boomers.