Shane is a 27 year old divorce attorney. He graduated from law school two years ago and set up his own law practice. He considers himself among the lucky Millennials because he can afford to rent an apartment instead of having to live with his parents well into his 20s as so many educated young people are forced to do. However, with a $2,000 per month student loan payment, he won’t qualify for a mortgage anytime soon.
This could be the next weak spot in the housing market. Historically, educated people like him who are earning good money have bought homes at a relatively young age. The burden of huge student loans is changing that. For the first time, the homeownership among non-college graduates is higher than it is for college graduates.
These huge student loans have lead to missed payments while Millennials struggle to fine decent paying jobs. The missed loan payments damaged credit scores before they even become established. Even those that manage to make their student loan payments are well aware that every dollar going to student loans means another dollar that can’t be used to buy a home.
A Sense of Urgency
Today, rents, interest rates, and median home prices are all on the rise. Educated young adults know this is probably the best opportunity they’ll have to buy a house but are locked out of the market. Lenders don’t even want to process their prequalification applications when they know there are student loans involved.
The Consumer Financial Protection Bureau estimates that of the roughly $1.4 trillion that Americans owe on school loans, 67% of it is owed by people younger than 40. Beyond that, many also have credit card debt and car loans that needs to be paid off. But it even goes beyond that.
They are Also Afraid
These young people have seen their own parents and neighbors struggle with debt and even foreclosures during the Recession. The simple fact is they don’t like what they have seen. It’s no longer seen as shameful to live with mom and dad well into your 20s. From their point of view, venturing into a starter apartment is a better strategy than buying a starter house. That leaves them with a financial safety net at their parents homes in they lose their job or otherwise become financially strapped. They can abandon the apartment rent much easier than trying to keep up house payments when the finances get tough.
Young People are on the Go
While the vast majority of young people say they want to own a home, it’s just not a priority right now. Growing professionally and even making a stable living means being flexible about where they work. Many are working as freelancers and at short-term work assignments as a way of making ends meet. They don’t want to be tied down to a house because they want to be able to pull up shallow roots and move when a good job opportunity comes along.