As the housing market springs back to life, one demographic remains underrepresented among homebuyers. U.S. census data shows that the rate of homeownership for adults under the age of 35 has declined by almost 8% in the last decade. Approximately 3 million more young adults are living at home with their parents than before the recession. Analysts attribute the decline in young adult home ownership to four primary factors:
1) Student loans: With student loans at historic highs, many former college and graduate students are simply unwilling or unable to assume more debt.
2) Job market still in recovery: The 2007-2008 Recession had a particularly detrimental impact on career prospects for young adults. Deprived of solid long-term job opportunities, many young adults lack the income and job stability to purchase homes.
3) More stringent lending requirements: Financial institutions have been reluctant to lend to individuals with low credit scores after the burst of the housing bubble, and have put more stringent lending restrictions, including the Qualified Mortgage Rule, in place. Young adults often fall into this category, whether because of a lack of opportunities to build credit, or due to missed student loan or credit card payments.
4) Marrying later in life: Young adults are waiting longer to get married and start families, events which encourage homeownership.
While some of these factors (e.g., marrying later in life) reflect societal trends that may not change anytime soon, others, such as lending requirements, may be in flux once again. The Federal Housing Finance Agency’s announcement last week of a series of new protocols related to review and assessment of loans sold to Freddie Mac and Fannie Mae was widely perceived as a favorable development evidencing strong intentions to ease the credit crunch. Young adults (and the homebuilders whose homes they are once again able to purchase) stand to be among the biggest beneficiaries.