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February 2019

Student debt impeding home purchases among millennials

February 7, 2019

Rising student debt burdens have significantly deterred homeownership among young adults, concluded the Federal Reserve. In a new study, the nation's central banking system quantified what many Realtors, millennials and mortgage lenders have long suspected.

In a recent study, the "Fed" found significant slippage in homeownership rates among household heads ages 24 to 32.  Whereas 45 percent of households in this cohort owned their own home in 2005, that number dropped nine percentage points by 2014.

Researchers note several factors have influenced the decline, but many believe historic levels of student debt are a key impediment. The study estimates 400,000 more young adults would be homeowners but for their student loan burdens.

Outstanding student loan balances have more than doubled in real terms in the last decade to a current level averaging around $10,000 per student. Collectively, the student debt burden is around $1.5 trillion, more than the amounts owed for credit cards and car loans.

Analysts emphasize the relationship between student loan debt and homeownership is complex. They also stated an important caveat to keep in mind when interpreting the data "is the difference in mortgage market conditions before and after the financial crisis."  Credit was relatively easier to obtain before 2008, but since the crisis loan underwriting may have become more sensitive to student loan debt.