Student loan debt is causing young Americans to put homeownership on the back burner, according to two papers published by the Federal Reserve.
This is what the central bank found:
- Homeownership for adults ages 24 to 32 fell 9% from 2005 to 2014
- 2% of the 9% decline is due to student debt
- 400,000 borrowers didn’t purchase a home as a result of student loan debt
- Student loan balances have more than doubled to about $1.5 trillion in the last decade
- The average debt per student between the ages of 24 to 32 set rose from $5,000 to $10,000 from 2005 to 2014
“While investing in postsecondary education continues to yield, on average, positive and substantial returns, burdensome student loan debt levels may be lessening these benefits,” the researchers noted.
“On the one hand, student loan payments may reduce an individual’s ability to save for a down payment or qualify for a mortgage. On the other hand, investments in higher education also, on average, result in higher earnings and lower rates of unemployment,” wrote the researchers.
The Fed also looked at the relationship between student debt and a migration of debt holders from rural areas. Over half of borrowers moved out of rural areas to urban areas in the last six years of incurring the debt.
“The loss of college educated young people could have important effects on the economic vitality of rural areas and raises questions about what rural policymakers could do to retain a larger share of these individuals,” the researchers wrote. “As more college students borrow to finance their educations, this question becomes even more pressing.”
A Hurting Housing Market
Just last month, the National Association of Home Builders/Wells Fargo Housing Market Index hit a three-year low. A combination of rising interest rates and low home affordability dented the housing market for much of 2018.
However, builder confidence rebounded as the index went up to 58 in January compared to the 56 reading in December. Furthermore, the central bank has been sounding increasingly dovish as of late, which could mean that less rate hikes than anticipated for 2019–something that could help give the sector a much-needed boost.
Rising in conjunction with mortgage rates are home prices, putting prospective buyers out of reach. The latest data from the National Association of Realtors showed that the Quarterly Housing Affordability Index has been dropping thanks to a rise in median home prices.
However, it appears that prices are beginning to soften. Home prices in the month of November logged a 5.1 percent annual gain, which represents its smallest increase since August 2015.
In the meantime, rental prices for single-family homes increased 2.9 percent annually in November 2018, which is up from the 2.8 percent annual growth compared to a year ago.
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