It’s understandable that young Americans would not want to take out even more debt to purchase a home after the housing bust led to a wave of New York bankruptcy filings and foreclosures. Indeed, according to a 2014 Federal Reserve Bank of New York study, the number one reason a group of renters gave for preferring renting over owning was high debt and low savings. (Unfortunately, the question didn’t separate the two.) Reasons number two and three were low income and low credit, respectively. Fear of falling housing prices came dead last. These phenomena apply all the more to young Americans.
All this raises the question: Is debt or income responsible for young Americans’ reluctance to enter the housing market?
According to research by the popular personal finance Web site NerdWallet, the millennial generation (born 1981-1997) wants to buy houses, but its credit isn’t good enough to allow it. Low savings, low incomes, and preexisting debts followed after that. In a sense, if low savings and high debts were combined, the report probably would have corresponded more to the one from the New York Fed.
Meanwhile, debt wasn’t deterring young renters from owning, according to the report. Only 3 percent fewer millennial households with student loan debts obtain mortgages than those without. Graduates of four-year colleges tend to have better luck ownings homes. Instead, it’s the non-completers and associate’s-degree holders who struggle to enter the housing market. The report concedes that half of households headed by people in their 20s or 30s do not have four-year degrees.
NerdWallet goes on to discuss financing options that require down payments that are lower than the traditional 20 percent of the purchase price. This point is fairly weak: Generous credit options won’t reduce house prices or monthly payments.
Unfortunately, millenials’ incomes are probably the bigger issue here. Although NerdWallet finds a healthy debt-to-income ratio for the median American in the 25-34 age bracket, such measures don’t include workers with no earnings, which nowadays is 5 percent higher than before 2008 (see Table PINC-03). In part that’s due to greater numbers of younger people staying in college, but a lot of it is people leaving the labor force. With lower incomes, it’s unsurprising that their homeownership rates for those under 35 have fallen to 35 percent, which is probably a record low going back to the 1980s.
The NerdWallet report is here.
To answer the question, then, it’s probably low income that’s ultimately driving the low homeownership rate for young Americans. Debt and savings play a role—certainly in perceptions—but without substantial incomes, debtors can’t afford to repay debts or save for homes. As a result, it’s unlikely that millennials will own homes in the future, but whatever generation you belong to, if you are encountering financial difficulties due to your debts, it can help to talk to an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.