I’m not one who normally thinks about, worries, or complains about my age. Other than my inability to lose ten pounds, I actually like the process of growing older. I’m calmer, I have greater perspective, a slew of great friends and I’ve created terrific memories. As if that wasn’t enough to celebrate, let me add one more to the list- I’m not a recent college grad. My god, do they have it tough! I bought my first house when I was 25 years old. Today, I’m certain that I would have to put off that dream for quite a long time.
Normally, 40% of all of the buyers in a given real estate market are first time home hunters. This year, that figure has dropped to 28%. Where have all of the first time buyers gone? It seems that they’re staying home. More precisely, they’re staying in their parent’s homes. 2.1 million more Americans in their 20s lived with their parents last year. The percentage of 25 to 29 year olds living at home with their parents increased to 20% in 2013- up from 15% a decade ago. There are clearly several factors contributing to the phenomenon:
Millennials saw the value of their parent’s home equity decline, on average, 30% between 2006 and 2010- a full $6 trillion worth of lost wealth! Of course younger Americans are fearful of homeownership. This skepticism may remain etched in their psyche for many years to come and may prevent them from making their first real estate purchase.
Meanwhile, on January 10th of this year, new mortgage regulations, intended to erase reckless lending patterns, took effect. While the changes are necessary, they are impacting first time house hunter’s ability to buy. Among several changes, new rules were adopted that required stricter debt to income ratios. In addition, on March 31st, FHA imposed changes which mandate that all mortgagees with less than 78% equity at the inception of the loan will have to pay Mortgage Insurance Premium (MIP) throughout the term of the mortgage. Previously, homeowners had the ability to cancel their MIP once the equity in their residence had reached 78%. This latter change will tack on tens of thousands of dollars to the average loan payment over the term of the loan.
Student loan debt is another impediment to first time homebuyer’s intent to purchase. Between 2001 and 2010, the share of households aged 25-34 with student loan debt soared from 26% to 39%. Meanwhile, over the course of the past decade, student loan debt grew at an average of 6% per year. And, interest rates on federally subsidized Stafford loans jumped from 3.4% to 6.21% over the past year. Sure, we have a more educated society with the prospect of higher wages. However, unemployment numbers still need to improve before a greater number of graduates are able to pay down on their student loans and save for their first home.
Changes have to be made. If millennials continue to stay on the sidelines, one of the great levers of the national economy, real estate, will remain hampered. Fewer homeowners will be able to sell their first property and purchase a larger residence. Fewer refrigerators, carpeting and paint will be sold. I’m an optimist. I believe in the American dream. And, I believe that one of the underpinnings of our society, capitalism will, in the end, prevail. Unfortunately, the United States Congress is responsible for a great deal of the change that is needed and progress will most likely be slow to come.