The majority of millennials want to own a home. However, data released by the Board of Governors of the Federal Reserve suggest they can’t because they owe too much in student debt.
This makes millennials the first generation in a while to be forced to postpone saving for homes simply because their student loans take up so much of their income. No wonder the growing debt related to higher education has now achieved “crisis” levels.
This reality is not only hurting their home-buying prospects, but it has also created a different financial dynamic altogether as college debt keeps them from getting tied up in other forms of debt.
Overall, data show they tend to have less credit card debt than Generation X members and baby boomers. And as we know, they are also behind the incredible popularity of the sharing and gig economies.
“While only 20 percent of Generation X members had a student loan balance in 2004, more than 33 percent of millennials had one in 2017,” the board explained in its report. In addition, “the median balance among student loan borrowers was substantially higher for millennials in 2017 than for Generation X members in 2004 (over $18,000 versus $13,000).”
This reality, married to the fact that millennials also appear to have trouble finding gainful employment within their chosen areas, might be why young people have difficulties becoming homeowners. According to an Apartment List study, 9 out of 10 millennial renters across the nation dream of purchasing their own home. Still, few feel they can do so in the coming future, as 48 percent said they had nothing saved for a down payment.
For millennials who are college graduates but have no student debt, prospects are better. Apartment List estimates that 23 percent of them would have enough to save for a down payment within the next five years. But only 12 percent of college graduates still tackling debt would be able to save toward buying a home.
"Student debt is keeping homeownership out of reach for many millennials," authors concluded.
With the average borrower today having $34,000 in student loans, it’s important to look at the roots of this issue. After all, a series of factors have helped to both shrink millennials’ income and inflate their education costs drastically and yet few media outlets consider them.
How Bad Government Policies Paved the Way
Young workers today started their careers after the 2008 Great Recession. The recession forced them to deal with unemployment for several years and slower income growth once they were finally employed. But as wages finally began to return to the levels we saw in 2007, another couple of problems made it harder for millennials to keep up.
Once millennials hit the labor market, the Federal Reserve’s easy-money policy had already been in place for at least 20 years, destroying the dollar's purchasing power. By the time young people got their first jobs, they faced a world that had learned that saving was bad and that near-zero interest rates were the way to go, in spite of the fact that this policy only benefits those who already own assets, not those just entering the labor market.
As the government’s policies of subsidizing both housing and education were ramped up over the decades, both home and college costs went up. But young people didn’t realize that the moment they entered college, they were already overpaying for something that had been artificially inflated thanks to the government’s involvement.
By the time they decided they wanted to purchase a home, they were once again hit by an artificially bloated market.
In other words, millennials were directly impacted by the consequences of bad monetary policy that had been pursued for decades. In addition, by the time they entered the housing and education markets, housing and education had become much more inaccessible thanks to the government’s policies. It’s almost as if they were doomed long before they knew what they were getting into.
Thankfully, this reality is finally waking them up to the policies that ruined the economy just as they came of age.
According to a recent Reuters/Ipsos poll, only 39 percent of millennials now favor the Democratic party, the champion of subsidized education, health care, and housing. However, if they are not smart enough to press elected officials to steer away from meddling with markets, the affordability of housing and education will just continue to decline.