As Millennials enter into prime home-buying age, the housing market is beginning to reel from their financial uncertainty.
According to the Wall Street Journal, the Federal Reserve has linked rising student debt to a drop in homeownership among Millennials and the flight of college graduates from rural areas, two big shifts that have had a staggering effect on the U.S. economy.
Jason Dorsey Highlights Essential Information
This is crucial information for everyone from financial professions to real estate agents and interior designers. While the housing market might be slowly recovering, it might still take Millennials years to pay down their debt enough to feel comfortable buying a home.
The effect of student debt on the economy has been debated in recent years, as the total has soared to $1.5 trillion, surpassing Americans’ credit card and car-loan bills. While some will say that federal student loans are a key way for Americans to pay for college and boost their career earnings, it’s clear that this debt is also damaging the economic prospects of an entire generation of Americans.
The Fed’s report showed that homeownership among people ages 24 to 32 fell 9 percentage points, to 36% from 45%, between 2005 and 2014. While many factors affected the homeowner rate, the Fed said that about one-fifth of the decline was tied directly to student debt. That translated into 400,000 borrowers who could have owned a home by 2014 but didn’t because of student loans.
This is for two main reasons: first, many borrowers fell behind on their student loans and damaged their credit, hurting their ability to qualify for mortgages. Second, many others have good credit but are unable or unwilling to save for a down payment on a home because they funnel their disposable incomes toward student debt.
A separate Fed paper Wednesday showed Americans with student debt are leaving rural areas in droves. Half of all student-loan borrowers in rural areas moved to urban areas within six years of taking on their debt. While housing in urban areas likely isn’t more affordable, Millennials are far more likely to find higher-paying jobs in these cities, giving them a higher quality of life and more power to pay down their debt.
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