Student Loan Debt Behind Delayed First Home Purchases

by | Jun 27, 2016 | Financial Featured

Why Aren’t Millennials Buying Houses? Student Loan Debt

Millennials often get a bad rap. One of the things this generation is often faulted for is moving back home with their parents after college. Many are still job hunting or underemployed, and the cost of living in major cities is out of reach for a lot of recent graduates. But that’s not all that’s going on when millennials move back home. For many, student debt weighs heavily on them as they try to pay down their loans.

The Typical Home Buying Timeline

Before we critique millennials for falling behind on the process of purchasing a home, it’s important to note that the median age for purchasing your first home in the U.S. has hardly shifted in decades. Between 1970 and 1974, the median age was 30.6 years old. As of 2015, it was 31 years old.

If this is the typical metric, then it’s hard to judge millennials – two-thirds of the generation are still under 31, and nearly a quarter are 25 or younger, making them rather young to start house hunting.

Admittedly, now would be an unusually good time to buy if you look back at the last few years of the housing market. An improved economic outlook has brought mortgage rates down, creating a welcoming market, even as home prices go up. By locking in a fixed rate mortgage while interest rates are low, the long-term payment outlook is good. Still, buying a house is expensive, and young people who are saving responsibly to be able to pay for home upkeep and their student loans shouldn’t be shamed for it.

The Debt Factor

Student loan debt has been increasing, particularly among students who attended private four-year institutions; and unless you’re in a graduate program or job that allows for payment deferrals, graduates begin paying those loans back almost as soon as they cross the graduation stage.

Payments can be a few hundred dollars a month – money that could go towards a down payment on a home. Instead, coupling this expense with underemployment results in many students who can barely make ends meet, even when living at home.

The two categories of millennial grads who are most likely to say they’re putting off the purchase of their first home are those between 26 and 35 and those carrying between $70,000 and $100,000 in debt. In both cases this is unsurprising – the latter group is buried by the repayment process and the former are most likely to have graduated into the recession-era economy and been without jobs for a period of time after finishing school.

Some students can rely on parents to help them make the first step towards home ownership, seeking assistance with the down payment. This has worked well for those whose parents have seen improved home values in the last decade and can afford the outlay, but many are not so lucky – particularly those whose parents don’t own their home.

When You Can’t Sell

Finally, student loan debt is causing a problem, even for many who do own their homes. When loan debt rises too high, some find that they fall behind on their mortgage, or can’t pay down the property as quickly as they would like. Instead, making student loan payments leaves them with little disposable income and trapped in a home they can’t entirely afford.

With this data, it’s entirely understandable why many millennials haven’t yet entered the housing market – and in fact, it might be time to wait on this particular critique until more than half of millennials have hit median home buying age.

Though loan debt may be slowing many down on the road to greater independence, very few are really behind on this life milestone.


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