Will millennials ever be homeowners?
Student-loan debt and unemployment shackle many adults in their 20s and 30s, the traditional first-time homebuyers. These tips may help some qualify for loans.
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The recent recession kicked the millennial generation — those in their 20s and early 30s — in the teeth. Some wonder if they'll ever be able to own a home. Experts worry, too, especially because the housing market depends on young, first-time buyers.
The downturn began just as many young adults were entering the workforce. Americans ages 20 to 24 suffered a 12.9% unemployment rate in May. That was actually an improvement from 14.6% last year. (Bing: What's the rationale behind naming generations?)
A college education is supposed to give job seekers an advantage. But to get it, many took on loans that now prevent them from qualifying for a mortgage.
"Sobering" is how the Consumer Financial Protection Bureau describes the roughly $1 trillion that Americans owe on school loans, 67% of it owed by people under 40. Just over half of college graduates from 2006 through 2011 have full-time jobs, yet six in 10 have student loans with an average balance of $20,000.
In another time, Amanda Bate would have been a typical first-time homebuyer. She has always wanted to own a home. Now that she's 26, with interest rates and home prices at or near record lows, the time seems right. She went shopping this spring near her workplace in Birmingham, Mich.
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"The housing market was so low. I thought, 'I could possibly get a house,'" she says.
The house she loved was listed at $80,000. The mortgage payments would have been about $500 a month, cheaper than the $610 a month she'd paid when she rented an apartment.
But the mortgage broker dumped cold water on her dreams. Even working a full-time job, plus a part-time job on weekends, and even though her parents have been helping pay her student loans, buying a home was out of the question.
For one thing, she'd need an $11,000 down payment. "I don't even have a savings account," she says.
But it's her student loans — $1,470 a month in payments on $123,000 in combined balances — that have made buying impossible. Bate earns just $30,000 as marketing director for a small media company.
She says she wishes someone had warned her. She now can't imagine when she can ever buy a home of her own. Meanwhile, she's living with her family, like one in five 25- to 34-year-olds, and "everything I have goes into those loans."
- On our blog, 'Listed': First-time homebuyers shut out in some cities
A generation struggling
Some experts see the double curse of unemployment and student debt as an ominous sign, not only for millennials but also for the whole economy.
- MSN Money: Are millennials saving the economy?
"Debt, coupled with double-digit unemployment, has hobbled millions of young adults who would have bought homes, married, had children and feathered their nests with all the middle-class goodies that keep our economy humming," demographer Cheryl Russell writes.
Tighter mortgage-lending requirements add to the trouble for young would-be homebuyers. The numbers paint a picture of a generation falling behind:
- 36.8% of people under 35 own homes, down from 43% in 2006.
- 61.4% of people ages 35 to 44 are homeowners, down from nearly 69% in 2006.
- Just 9% of people ages 29 to 34 got mortgages in 2009 to 2011, compared with 17% a decade earlier, even before home prices inflated and mortgages became easy to get.
- 40% of those with student loans have put off making big purchases such as homes and cars.
But Paul Ashworth, an economist with economic-research firm Capital Economics, says he isn't convinced that student debt will prevent millennials from eventually owning homes. Despite recent widespread concern over student borrowing, sketchy data make it hard to know if the proportion of borrowing is worse than in the past, he says.
At roughly $1 trillion, student debt is greater than outstanding auto loans ($730 billion) or credit-card balances ($693 billion). But it's unclear if that's a change, Ashworth says. "My big thing is, is it any different than it used to be?" he says.
Also, on the upside, six-digit student-loan balances like Bate's are unusual. Just 3.1% of borrowers owe more than $100,000. Most borrowers, 72%, owe less than $25,000. That's still sizable, especially if your salary is $25,000 or $30,000, and 14.4% of borrowers have missed at least one payment, so many clearly find their loans hard to repay. But it's equivalent to buying a new car — a big purchase, but one many young people manage.
There's no question, though, that many young adults are struggling.
"These were people who were most likely to be buying a home with very little equity at the very top of the boom," Ashworth says. "They would also have been the people who got whacked the hardest when the market turned down because they wouldn't have had the time to build up equity." That makes them more prone to foreclosure and negative equity.
With unemployment so unstable nowadays...who in their right mind would ever sign off on making a $1100/mo payment for 30 years (seems to be the going price for ENTRY LEVEL homes in my area near Tampa.) Homes are way overpriced, and the rates here for new construction have gone up $15k the past three months.
Mortgage rates are following.
Buying a home just does not make sense to me.
You don't know how bad it can be when your parents can't afford to house you when you finish your college. I'm currently living in a trailer with ex drug dealers and pill poppers because I honestly don't have any other choice in the matter. I need a place to stay, mom lives in a hotel downtown, dad lives in a campground. So I guess this makes me the most successful person in my family.
Went to college, for ya know, a semester and a half before my funds ran out. My debts are paid by now (I was 17, now 26) still don't own a car though. Having a bit of a hard time finding a job but I refuse to get foodstamps because I don't want to be another parasite on society.
So for you who are even thinking of buying a house, I wish you the best of luck, but you really have NO ROOM TO COMPLAIN.
Forget college. It overpriced and our economy is currently demanding skilled workers like machinists. I've recently read that the average hourly wage for a machinist is somewhere around 30.00/hr. Our country needs to go back to making stuff that people actually want to buy. Also, my son wants to go to college to become an engineer which there is actually some demand for. He is well aware that he will not be getting much assistance from me or mom. He will need to choose a less expensive college in which he will travel to every day of class. This will force him to be more responsible with his money and hopefully work part time jobs while going to school. It's called discipline, and more people need to learn discipline.
i think the banks had a bailout and the people of the united ststae have to pay for their gread. how come we cant go to the bank and get a loan. because it is based on your credit. we should get rid of credit scores for good the the united states. other countries do njot have credit scores the have jobs based on credit
Equal opportunity does not result in equal outcome no matter how hard the Marxist-in-Chief tries to redistribute the wealth. Are you through with the lies and can you accept the reality that capitalism does not ensure success for all and neither does Marxism?
Here we go again. It's all the students' fault for taking on too much debt. Your failure is a lack of character, a personal defect.
Baloney. They followed the system. They did what they were supposed to do to be good little Americans, get an education, get a job and work hard and be responsible. Only, guess what, the facade is now even beginning to crumble. The charade is failing.
We let banking autocracy play with 401k money like it was a game of monopoly. You will pay double the rates on your student loans over conventional loans like home mortgages, car notes, even lines of credit for business. Why? Because Republicans want to play politics with your student loans. They are for the gap. They are for you struggling.
This country is over. If you are over 55 and have your retirement saved for, congrats, you'll get medicare and social security and have the life you always dreamed of. For the rest, forget it. It's over. You'll barely be able to pay for kids, keep a home if you have one, get a home if you don't, and find a way to eek out a meager living for the next 30 or 40 years, while just about every home on your block goes through foreclosure.
But go ahead, Daddy Billionaire Romney will solve all. He's going to work really hard to eliminate that gap between the rich and the poor. He's going to make you a job tomorrow with your hard earned college (maybe even grad school) education -- a week after he is elected. He'll cut the regulations loose and all will trickle down like manna from heaven. Riiiight. Hopefully the education resulting from the educational debt made you smarter than to fall for the snake-oil teapubcians.
A lot of people say indebted college kids should just stop making such poor decisions, but the truth is they're only working with the information they've been given.
Choose your area of study wisely. I firmly believe that salary is directly related to the amount of effort required for study. If you question the effort you are willing to expend, you need to weigh going vs not going.
Don't live on campus - you are not in kindergarten. Living on campus has little to do with your area of study and should not be rolled into the cost of your education. Also, do get out there and make your own way - sponging 'free living' off relatives is going to teach you little. Make yourself appreciate the cost of staying alive.
Work and earn while you study - pay as many expenses in real time as you can. Putting this extra effort forward will make you appreciate your degree more. Also, stretch your wardrobe - no need to over do a wardrobe (buy serviceable used clothing) and let's be real - once you get your real job, none of the stuff you wear now is going to be useful anyway. Goes for household effects too.
Start to understand the difference between a need and a want - this alone may be the most important lesson you learn. Please strive to earn an A in this class.
Buy used books - and sell them back when you are done. I'd give it a 1% chance you are ever going to crack that book open again after you are done with a class.
Save a fixed percentage of every check right out of the gate. Ten percent is the bare minimum. This will build slowly, will serve as your beginning emergency fund, possibly your down payment for your first home, and also get good habits in place for when you need to start saving for retirement. Having good habits in place before you start earning in your 'real' job is a must.
I dont understand why people on this forum get angry at 18 year old kids when they do what society told them to do for almost 4 decades. (College leads to higher paying job) One of the bigger problems was a lack of foresight to see the college bubble, but you cant really blame anyone for that.
Colleges are run like a business now. The more students they have the more money they can make. So up until 2008 the paradigm was working just fine. (Colleges make money-student gets education and decent job once graduating) The availability of credit (student loans) has artificially kept this paradigm alive. However, things will shift away from going to college and more to attending trade schools.