Why Home Ownership Isn’t In The Cards For Generation Y
The American Dream: the idea that anyone, from any social class, can lead a prosperous life. It’s the quintessential dream of receiving a good education, landing a high-paying job and buying a nice home.
Once the ideal of Americans’ unique social mobility, the American Dream is becoming out of reach for a growing number of Americans. A combination of recent foreclosures, stricter lending policies and ever-increasing student loan debt has caused fewer people to be able to afford mortgages.
Homeownership, a Fluctuating Demographic
Homeownership rates, which reflect the percentage of homes occupied by their owners, rose slowly but steadily from the 1960s into recent years. The homeownership rate peaked in 2004 at 69 percent, seven percentage points higher than the rate of 1960. After the Great Recession, this number slumped back down to 65 percent, in large part because of foreclosures.
The drop has been even more dramatic among people under 35, a demographic which tends to include a mix of renters and first-time homeowners. In just an eight-year period ending in 2012, the homeownership rate for Americans aged 34 or younger dropped from 44 percent to just 36 percent.
In the past, people looked at their 20s as a time to get married, move ahead in their careers, and start saving money for a down payment on a home. Now, many millennials are struggling just to keep up with monthly student loan bills. Rising education costs combined with a stunted job market have made it all but impossible for recent graduates to save up money for a down payment.
Ever-Rising Student Loans
The average college graduate of 2012 left school with $27,000 in student loan debt alone. This doesn’t count other education-related debts such as credit card debts, which can include transportation, housing and textbook costs. According to a study this year, the average student now graduates $35,200 in debt. And 7 percent of those graduating with debt believe they’ll never be able to fully repay their loans.
These numbers are vastly different from just a few years ago. Mother Jones examined the difference between student loans in 2005 and those in 2012. Adjusted for inflation, the average student loan debt increased 27 percent in just a few short years. Such a dramatic rise is unsustainable, and we’ll likely see an increasing percentage of graduates unable to ever repay their student loans.
New Graduates and an Unemployment Epidemic
With such a dismal outlook on the student debt front, it’s already less likely that recent and upcoming graduates will be able to afford homes. Now combine this with the bleak unemployment statistics: In March of this year, more than 16 percent of workers under 25 were unemployed, down from a high of 20 percent three years earlier. In other words, people simply don’t have jobs to go to after graduation.
Those who do have jobs are in for a shock as well. People who graduated during the recession are taking jobs at low starting salaries. NPR estimates that recent graduates’ starting salaries are currently between 8 and 20 percent lower than they would be during a good job market. This is in part because companies can’t afford to pay more and in part because many graduates are taking positions for which they’re overqualified.
These initially low salaries stay with professionals. Young professionals who take lower paying jobs right out of school lose some bargaining power in the future. Their raises are based on current salaries, and salary negotiations at new jobs focus on previous pay rates. Some experts estimate that these professionals can take 10 to 20 years to start earning proper salaries.
All of this means less money in the bank and less means to buy a house. Still, some people find a way.
Taking the Plunge: Underwater Mortgages
Younger folks who have actually managed to put a down payment on a home may be regretting that decision now. MoneyWatch reported last year that almost half of homeowners under the age of 40 were underwater; 46 percent of young homeowners owed more on their mortgages than their homes were actually worth.
How does this happen? Most of these individuals bought their homes in the 2000s, when the housing market reached its peak and home values were high. Home-buyers took out large mortgages to cover the costs and had only just begun chipping away at their debt when the Great Recession hit. After the housing bubble burst and forced home values down, people still had huge mortgages but now found that their homes were worth much less.
This problem is most common with younger homeowners since they generally bought their houses more recently. Older people and families who have lived in their homes for several years or decades have had more time to pay down their mortgages. That way, their mortgages were already lower or completely paid off by the time their home values dropped.
Still, the underwater mortgage epidemic isn’t unique to younger homeowners; 31 percent of all U.S. homeowners were underwater in 2012. And older homeowners with underwater mortgages are actually faring much worse.
People aged 20 to 24 years old with underwater mortgages were underwater by an average of 12 percent, meaning their mortgage balances were 12 percent higher than their home values. In comparison, those aged 50 to 54 were underwater by an average of 30 percent.
Recovery: Homeownership in the Future
As the economy continues to bounce back from the recession, so does the housing market. Home values are on the rise, and people are beginning to get back in control of their mortgage payments.
Still, much of the damage is more long-term and some of it may be irreversible. Many of the older homeowners currently underwater have been delinquent on their loans for some time, meaning they haven’t made any mortgage payments. Although foreclosure rates are now on the decline, plenty of Americans are still close to losing their homes. This trend won’t change in the near future.
As for younger, would-be homeowners, there are just too many obstacles in the way of homeownership. Student loans, for example, are here to stay. Some younger Americans will eventually buy homes, but they’ll likely do so at older ages and in smaller numbers than their parents’ generation did.
More generally, the American public as a whole is suffering diminished confidence in the economy, an outlook that will take years to repair. For now, the new American Dream seems to be much less lofty: become debt-free.
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