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July/August 2014
The Buzz
Millennials Continue to Retreat from a Now-Recovering Housing Market

The Federal Reserve Bank of New York's Liberty Street blog recently posted an analysis that compares Millennials' participation in the housing and auto loan market in 2013 with findings from the previous year.

The result? While the real estate market has begun to recover, at least relative to the Great Recession, people in their 20s and 30s withstudent loans are continuing their retreat from the housing market noticed in the 2012 study. This age group as a whole is returning to autos, but those with student loans continueto hang back.

"Last year, our blog presented results from the FRBNY Consumer Credit Panel (CCP) indicating that, at a time of unprecedented growth in student debt, student borrowers were collectively retreating from housing and auto markets," wrote the report's authors Meta Brown, Sydnee Caldwell and Sarah Sutherland, all of the New York Fed's Research and Statistics group. "In this post, we compare our 2012 findings to the news for 2013."

According to the Fed, student loans now comprise 69% of the debit side of Jane or Joe Millennial's budget ledger. By the Fed's reckoning, student borrowers experienced an uptick in average totaldebt, from $29,872 to $30,227 in 2013.


The CoreLogic national house price index rose 11% from December 2012 to December 2013 - evidence of a substantial recovery in residential property. TheLos Angeles Times reported on January 3, 2014 that 2013 "was the [auto]industry's best year since 2007."

Despite a spike in overall mortgage debt, 30-somethings with or without student loans continued to retreat from the housing market.

"Prior to the most recent recession, homeownership rates were substantially higher for 30-year-olds with a history of student debt than for those without," the Fed stated. The truism was thatstudent debt holders have higher levels of education on average and higher earning potential. These people were more likely tobuy homes by age 30.

That changed with the Great Recession. "As house prices fell, home ownership rates declined for all types of borrowers, and declined most for those 30-year-olds with histories of student loan debt," the Fed stated.

"Surprisingly, student loan holders were still less likely to invest in houses than non-holders in 2013," the Fed added, "despite the marked improvements in the aggregate housing market."

The Fed said that this "remains a puzzle." The housing rebound of 2013 "appears to have proceeded without the help of this skilled set of young buyers." Explanations run the gamut - limited access to credit, lowered expectations of earnings, "even a cultural shift by which young people - whether they went to college or not - are deferring home purchases."

The Fed doesn't seem to have addressed the relative benefits of an improved real estate market--not everyone gets what he wants. Aside from the influence of student loan debt, there has been a slow rise in mortgage rates. According to, 30-year-fixed mortgages were at their lowest ebb last year in early May, when they averaged about 3.52%.

A year later, the 30-year-fixed mortgage rateaveraged about 4.35% for the week of May 5-9, 2014. An 80-plus basis point swing can spell the difference between becoming a buyer and remaining a renter, especially for first-time buyers. While the Fed cites the increase in the CoreLogic index, rising property values mean you'll probably need a bigger down payment and a larger mortgage, especially if you don't already have equity in a home you can sell. 

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