The “Millennial Mortgage”: The Cause of the Next Crash?

Most Americans in their early twenties, will leave college with a few things. Memories of partying with friends, the nostalgia of romantic relationships, the pride of earning your degree, and hefty mortgage payments. Not housing mortgage payments. No, something I like to call the “millennial mortgage”. While the housing market has been making a comeback over the last several years, student loans are continuing to hurt the housing market. Student loan debt is preventing millions of millennials from becoming first-time home buyers. According to a housing report done earlier this year, student loan debt has caused an 8% decline in home purchases among Americans ages 20 to 39. So this spreads into the GenX’ers as well, if that is still a thing. These numbers represent a worth of over $80 billion in real estate transactions not taking place.

The total outstanding student loan debt now stands at over $1.1 trillion, with an average debt of $21,000 for any college grad under the age of 30. They went from eating ramen noodles for breakfast, lunch, and dinner, to eating them while searching online for that first post-college job. That’s a frightening thought worthy of the most epic of panic attacks. The safety net of being a college “kid” is no more, the desperate hunting for a job to start paying off student loans, those student loans crippling them financially, keeping them from owning their first home before they ever become that mature 30 year-old they always envisioned. Yikes!  Most recent graduates end up moving back home with the folks, so at least some money can start being saved. This is about the only bright spot there is during this transition. But by living with their parents longer and postponing life events such as marriage and having children, the urge to buy that first home is put on the back-burner for many years.

An interesting pattern has taken place over the past four or five years with millennials. While home ownerships isn’t on their plate right after college, owning a brand new car seems to be. Millennials are upgrading their cars without much hesitation. Similar to the housing market, car purchases suffered during the great recession. But the share of millennials taking out auto loans has increased across the board over the last few years. This is regardless of whether or not young people have student loan debts.

 

There are some reasonable solutions to solving this student loan crisis. Restructuring all current student loan debts is a start. Longer repayment durations can make a major difference. As well as paying off student loans in full, as soon as they are financially able to do so. Don’t pull that bandaid off a painful wound slowly. Just rip it off fast! Just because a student loan provides you with a lengthy duration, doesn’t mean that it can’t be settled ahead of time. The U.S. government needs to seriously treat student loan debt for what it truly is…college students’ first mortgage. It’s time to offer recent graduates, student loan borrowers, the same tax relief that currently benefits home owners.

This student loan debt nightmare has been around for some time now and we as a nation seem to shrug it off as just a normal fact of life. It’s true that he economy is coming back strong. Unemployment is at it’s lowest number in over seven years. The housing marketing is slowly, but surely roaring back as well. But student loan debt, coupled with the millennials unable to purchase their first home, is a ticking time bomb just waiting to go off.