Student debt delaying millennial homeownership by seven years
WASHINGTON — Despite being in the prime years to buy their first home, an overwhelming majority of millennials with student debt currently do not own a home and believe this debt is to blame for what they typically expect to be a seven-year delay in buying a home.
This is according to a new joint study on millennial student-loan debt released Sept. 18 by the National Association of Realtors and the nonprofit American Student Assistance. The survey additionally revealed that student debt is holding millennials back from financial decisions and personal milestones, such as adequately saving for retirement, changing careers, continuing their education, marrying and having children.
The study found that only 20 percent of millennial respondents currently own a home, and that they are typically carrying a student debt load of $41,200, which surpasses the typical millennial’s annual income of about $38,800. Most respondents said they borrowed money to finance their education at a four-year college (79 percent), and slightly over half (51 percent) are repaying a balance of more than $40,000.
Among the 80 percent of millennials polled in the survey who said they do not own a home, 83 percent believe studentloan debt has affected their ability to buy one. The median amount of time these millennials expect to be delayed from buying a home is seven years, and overall, 84 percent said they expect to postpone buying a home for at least three years.
“The tens of thousands of dollars many millennials needed to borrow to earn a college degree have come at a financial and emotional cost that’s influencing millennials’ housing choices and other major life decisions,” said Lawrence Yun, chief economist for the NAR.
“Sales to first-time buyers have been underwhelming for several years now, and this survey indicates student debt is a big part of the blame,” he said. “Even a large majority of older millennials and those with higher incomes say they’re being forced to delay homeownership because they can’t save for a down payment and don’t feel financially secure enough to buy.”
According to Yun, the housing market’s life cycle is being disrupted by the $1.4 trillion of student debt that U.S. households are currently carrying. In addition to softer demand at the entry-level portion of the market, one-fourth of current millennial homeowners said their student debt is preventing them from selling their home to buy a new one, either because it’s too expensive to move and upgrade, or because their loans have impacted their credit for a future mortgage.
“Millennial homeowners who can’t afford to trade up because of their student debt end up staying put, which slows the turnover in the housing market and exacerbates the low supply levels and affordability pressures for those trying to buy their first home,” Yun said.
DEBT IMPACTS EVERY ASPECT OF LIFE In addition to postponing a home purchase, the survey found that student debt is forcing many millennials to put aside several additional life choices and financial decisions that contribute to the economy and their overall happiness. Eighty-six percent of those surveyed said they have made sacrifices in their professional career, including taking a second job or remaining in a position in which they were unhappy, or taking one outside their field. Furthermore, more than half said they have delayed continuing their education and starting a family, and 41 percent would like to marry but are stalling because of their debt.
Even more concerning, Yun said, is that it appears that many millennials are putting saving for retirement on the back burner because of their student debt. Sixty-one percent of respondents said that at times, they have not been able to make a contribution to their retirement, and nearly a third (32 percent) said they were, at times, able to contribute but with a reduced amount.
“Being unable to adequately save for retirement — on top of not experiencing the wealth-building benefits of owning a home — is an unfortunate situation that could have long-term consequences to the financial well-being of these millennials,” Yun said. “A scenario where only those with minimal or no student debt can afford to buy a home and save for retirement is not an ideal situation and is one that weakens the economy and contributes to widening inequality.”
BETTER UNDERSTANDING OF COSTS The financial pressures many millennials who have student debt are now experiencing appear to somewhat come from not having a complete understanding of the expenses needed to pay for college. Only one in five borrowers indicated in the survey that they understood all of the costs of their education, including tuition, fees and housing.
“Student debt is a reality for the majority of students attending colleges and universities across our country,” said Jean Eddy, president and CEO of American Student Assistance.
“We cannot allow educational debt to hold back whole generations from the financial milestones that underpin the American dream, like homeownership,” she said. “The results of this study reinforce the need for solutions that both reduce education debt levels for future students and enable current borrowers to make that debt manageable so they don’t have to put the rest of their financial goals on hold.”
The nation’s real estate professionals are offering help when possible.
“Realtors are actively working with consumers and policy leaders to address the growing burden student debt is having on homeownership,” said William E. Brown, NAR president and a Realtor from Alamo, California.
“We support efforts that promote education and simplify the student borrowing process, as well as underwriting measures that make it easier for homebuyers carrying student loan debt to qualify for a mortgage,” he said.