The housing market has been subjected to a number of problematic scenarios in the wake of the recent bubble. However, there is one in particular that threatens to be a problem for the foreseeable future. High debt levels and weak job prospects on a national level have made it increasingly difficult for young Americans to participate in the housing sector. A distinct lack of activity from this age group could be a significant hurdle for the housing sector as it struggles to recover.
Otherwise known as Millennials, this particular population has been dramatically impacted by debt. Student loans, in association with higher rents and a down economy, make saving a foregone conclusion. The hole that they have been placed in, by no fault of their own, makes it hard for them to even consider the prospects of buying a home.
Their current situation, in the eyes of lenders, is risky. Even if they are able to receive a mortgage, it is at a great cost. Debt counts against Millennials when lenders calculate how much money they’ll lend: Every dollar of debt means less available for housing.
According to a recent Pew survey, more and more Millennials are taking drastic steps to further their savings. This includes the 36% of Millennials that are inclined to move in with their parents to save extra money. While that saves on living expenses, it severely limits their ability to build the credit histories they need to eventually get a mortgage.
Ultimately, the state of individuals between the ages of 18 and 32 is not conducive to a healthy housing sector. Only 34.3 percent of the people in this age group purchased a home earlier this year. Debt to income ratios make it almost impossible for them to save up enough money to pursue the acquisition of a house. More importantly, their lack of participation in the housing sector is crippling the recovery. The New York Federal Reserve reported recently that, for the first time, the homeownership rate among college graduates was less than non-grads.
At the age of 27, Shane McClelland is a divorce attorney in Columbus, Ohio. Only two years out of law school, Shane is already on the path to success. He owns his own firm and loves his position. That is, until you account for the $200,000 he has in student loans. Despite his lucrative practices, Shane is having trouble saving money.
“It’s really delaying the adult milestones I should be hitting,” he said.
His student loans account for nearly $2,000 a month and are preventing him from actively participating in the housing sector. One lender told McClelland they didn’t even want to process his loan application. The debt on record is too much of a red flag for any lender.
Similar scenarios can be seen on a national level. Despite being college educated and on the path to success, young adults are finding today’s market conditions to be an impossible hurdle when purchasing a house. The number of first-time homebuyers continues to decline. According to the National Association of Realtors (NAR), first-time buyers accounted for 28 percent of existing-home purchases, down from 32 percent in September 2012.