Millennials have become the driving force of the country. They also have big plans for themselves, the country, and the world as a whole. Unfortunately, one of their biggest plans—buying a home—remains and will remain just a plan for some time to come. This is because millennials simply cannot afford to buy a house.
But millennials have been working, so what is the obstacle preventing them from owning a home? There are several obstacles, but the biggest of them has proven to be student debts.
Student Loans – A Blessing and a Curse
For many college graduates, going through school would have been impossible without student loans. However, although the loans were a convenience back then, the debts accrued over the years have proven to be a great inconvenience today in small and big ways depending on one’s salary; that is, assuming that he/she is employed. The greatest of these inconvenience have come in owning a home. A recent survey conducted revealed that about 46.5% of all millennials in the country have debts on their student loans. What’s more, about 60% of this population revealed that these debts inhibit their spending habits greatly or moderately, depending on one’s salary.
While expenditure is also a matter of personal and national concern for the economy, savings play a key role in home ownership too. Inhibited expenditure only inhibits savings, and perhaps this is the reason why most millennials have been accused of lacking money management skills. Millennials may have few reservations when it comes to having a good time, but the biggest inhibitor for most millennials when it comes to saving is student loans.
Contrasting Two Categories of Millennials
Apartment List, a leading housing analytics and data research company, recently published its annual report regarding millennials and home ownership. In it, it revealed that millennials with debts on student loans need at least 10 years to save up enough for a 20% down payment on a home; millennials without student loan debts, on the other hand, take an average of five years to save up for the same 20% down payment. Millennials without a college degree have an even bleaker future when it comes to home ownership.
Student Loans Impact on Savings
The report went further to review the average debts and savings for millennials with student loans. The analyzed data revealed that 37% of the millennials with debts on student loans pay about $200 per month while the rest of the population pays an average of $410 per month. Savings designated toward home ownership for participants in both groups, on the other hand, averaged at about $210.
Contrasting the figures, it is clear that debts on student loans are significant obstacles towards savings. In fact, they are so inconveniencing that analysts reported that absence of the debts would allow these millennials to save double or three times the amount they are saving now. This, in turn, would reduce the period needed to save up for a house by about half; the same period taken by millennials without debts to save up for a 20% down payment.
Student Loans Impact on Expenditure
Regardless of the financial odds stacked against millennials with debts on student loans, there seems to be little or no deterrent to what most consider imprudent expenditure. Ideally, millennials with debts to pay would be expected to minimize expenditure to maximize savings. This, however, has not been the case as millennials with debts have been shown to spend just about as much as those without. Considering that most people focus more on spending than on saving, this situation further compromises savings and extends the time taken to purchase a home.
What Happens Next?
Millennials make up a substantial percentage of the population, and the economy significantly depends on their expenditure just as much as it does on their output. Considering that the real estate market is a vital pillar of the U.S. economy, questions have to be raised about the consequences of millennials’ inability to afford a home.
Although the future may take many directions, there are three most likely courses of action that most millennials will take:
Some cities are cheaper to live in than others when it comes to rental and home rates. For instance, cities such as San Francisco and Denver are registering rising rental and home prices. As the prices rise, many millennials may have no other option but to leave in search of more affordable places away from the West Coast.
Opt for smaller down payment plans
Fortunately, programs such as the FHA offer lower down payment plans compared to the standard 20%. For instance, the FHA program requires a down payment of only 3.5%, which is increasingly becoming attractive for millennials for whom the dream seems too far off. Unfortunately, these plans have higher interest rates. Hence, millennials who choose this direction will further be laden with more debts than they already are, putting their homes at risk.
Delaying family life
Millennials’ reluctance to settle down has also been blamed for their reluctance to buy homes, but the opposite is also true. The limitations associated with living in an apartment deter most millennials from getting married and getting kids, which has been a growing concern in the past several years. However, whatever course of action that these millennials take, it still seems that it will take a long time for them to own homes, and the trend will persist considering that nearly two-thirds of millennials will graduate with student loan debts in the coming years.
In spite of the hope generated by millennials everywhere in the country, they seem somewhat hopeless when it comes to home ownership thanks to, among other things, debts on their student loans. Research shows that most of the millennials with debts on student loans may have to save up for at least ten years to afford the 20% down payment on a home, but it will likely be longer considering their laxity in saving. What’s more, the trend may persist for years to come, and this may spell trouble for the real estate industry and the national economy as a whole.