Millennials, Mortgages and Student Debt

Student Debt is One of the Reasons Young Adults Are Now Less Likely to Borrow Money to Buy a Home

Twenty-somethings are not borrowing money to buy homes at the rate they were a decade ago—a trend that may have as much to do with high levels of student debt and poor job prospects as it has to do with trauma from the housing bust.

That was the message that Equifax Deputy Chief Economist Dennis Carlson shared during a panel discussion at the National Association of Real Estate Editors (NAREE) annual conference in Miami June 24. The panel, titled “Mortgage Availability for Millennials and Other First-Time Buyers,” was moderated by Kris Hudson, a real estate reporter for The Wall Street Journal. The discussion generated significant media coverage, including from Bloomberg and The Atlanta Journal-Constitution.

One factor limiting millennial purchases is the “tremendous amount” of student debt they’re burdened by, Carlson said during the panel discussion. Other members of the panel represented Realtor.com, Wells Fargo and the Mortgage Bankers Association.

Equifax put out a news release the same day with data about millennials and mortgages. Five key data points in the release included:

1. In 2004, consumers under the age of 30 in the United States had $146 billion in student loan debt, a number that had more than doubled to $369 billion by 2014.

2. Equifax data shows a high correlation between income and student loan delinquency rates. Those earning less than $30,000 are at the highest risk for delinquency. The delinquency rate is reduced by 20 percent with each additional $10,000 of income, a phenomenon that demonstrates the strain student debt puts on young consumers starting their careers.

3. While steady employment helps, Equifax data also indicate that young workers struggle to make timely payments on their student loans even as late as four years into a job, whereas older workers see improvement in payment performance.

4. While mortgage debt fell among twenty-somethings both with and without student debt, it fell at a faster clip among those with student loans, according to data from Equifax and the Federal Reserve Bank of New York. In 2006, 33.2 percent of consumers under 30 with student debt had mortgage debt. By 2014, the number fell to 20.9 percent. In 2006, 29.6 percent of consumers without student debt had mortgage debt. By 2014, the number fell to 21.7 percent.

5. When renters were asked why they did not purchase a home, the No. 1 answer was “too much debt/not saved enough.” More than half of respondents—55.7 percent—gave that response in the Federal Reserve Bank of New York Survey of Consumer Expectations. Only 7.9 percent said they were concerned housing prices would fall.

“Equifax data suggests that the conventional theory—millennials are the rental generation and uninterested in home ownership—is only a part of the story,” Carlson said. “Importantly, large amounts of student debt and less than stellar job prospects for recent college graduates make the dream of home ownership shine less brightly than in the past. But we also see indications that they will eventually want the family, the car, and the house that older generations desired, just with a significant delay.”

For more information on predictive data or other marketing and acquisition solutions, visit www.equifax.com/mortgage.