Young Americans delay purchase of homes facing tough economic climate, uncertain job prospects and student loan payments
By Anjli Raval in New York
Andrea Stautberg, 27, and her husband James wanted to buy a house after finishing graduate school in 2009. But in the face of a tough economic climate, uncertain job prospects and $115,000 in student loan payments, the couple instead decided to save money by living with James’s parents in Texas.
They stayed for more than a year – longer than the three months they had planned – before deciding to rent a flat.
“We are looking to buy a house, but have yet to get preapproved,” said Ms Stautberg. “We lived with his parents for as long as we did to pay back our student loans and still save for a down payment.”
The Stautbergs’s story illustrates how difficult it has become for young Americans to buy their first homes, despite low interest rates and years of declining house prices. The number of first-time buyers fell last year – they made up only 37 per cent of home purchases in 2011, down from 51 per cent in 2010 – sapping the struggling US housing market of a traditional source of vitality.
High levels of student debt, along with tighter mortgage requirements and stagnant wages, are forcing young Americans such as the Stautbergs to delay purchasing their first homes. Concern about rising student debt levels is growing in the US, and President Barack Obama has sought to make it an election-year topic.
At more than $1tn, outstanding student debt in the US has surpassed auto loans and credit cards as the second-largest source of consumer debt after home mortgages, according to government statistics. Recent university graduates carry an average debt load of more than $25,000 – a burden that may hamper their ability to qualify for a mortgage.
First-time buyers, usually between the ages of 25 and 34, are an important source of incremental housing demand, as they are at the start of a chain of housing transactions. The reduction in demand for “starter homes” has left existing homeowners who want to move on to bigger, more expensive properties in a bind as the pool of people willing to buy their homes has shrunk.
Even as single family homes are the most affordable since record-keeping began in 1970, according to NAR, with prices down by about a third from their 2006 peak, young adults are renting, not buying.
Many, like Andrea and James, have moved back home. Almost 6m Americans between 25 and 34 lived with their parents in 2011, up from 4.7m when the recession began in 2007, the Census Bureau said.
Brad Doremus, senior analyst at Reis, the commercial real estate research group, said first-time buyers are particularly hurt by tighter mortgage requirements that are even harder to meet with growing student debt burdens.
“Down payments needed to buy a house have grown since the years of loose mortgage credit in the mid-2000s. Back then, many buyers were able to purchase a house with no money down. Now, a 20 per cent down payment seems to be the norm. As a young, first-time buyer, that amount can be onerous,” he said.
Roshell Schenck, 28, from Erie, Pennsylvania, has a PhD in pharmacy and earns $125,000 a year – but yet she is unable to own a home.
“Between undergraduate and doctorate schooling and interest, I now have approximately $120,000 in loans,” she said. “Although I make a very good salary, there is no government help for housing programmes because of the amount of money I make and there is no one willing to give me a loan because of the amount of student loan debt I have.”
Student debt increased by a quarter on a per-borrower basis for private schools and 11 per cent for state schools during the 2000s, according to the College Board.
A survey by Rutgers University released last week found that 40 per cent of those graduates questioned had delayed making a large purchase such as a home or car because of student debt. Just over a quarter had put off continuing their education.
Meanwhile, median household incomes when adjusted for inflation, have dropped roughly 7 per cent over this period, government statistics show. With youth unemployment so high, incomes of younger people are likely to have suffered to a greater extent, analysts have said.
Although the unemployment rate for 25-34 year olds stands at 8.8 per cent, above the national average, the greater concern is the persistently high 13.4 per cent unemployment rate for 20-24 year olds. That is a worrying sign given these young Americans will represent the next wave of first time buyers.
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