Student debt also pushes off a traditional life milestone for earlier generations—the erstwhile “American Dream” of owning a home. With high housing costs in many urban centers, it’s hard for millennials to cobble together enough for a down payment.
The good news is that, on a purely financial basis, housing isn’t a good investment for many young people anyway, Frailich said. “They are realizing that a 2,000-square-foot house that you have to heat and cool and repair could be a huge suck on their time and their money,” he said.
Those young adults who do take on mortgages are sometimes following dated advice from their parents, said Frailich. The old adage was that you should pay more than the minimum each month, slicing a 30-year mortgage down to 25 years. Frailich said that strategy makes less sense today, when you think about what a good deal a 30-year loan at 4% can be. It may make less sense to focus on paying down a mortgage than to, say, build up an emergency saving fund or start to save for retirement.
For those young folks still dead set on buying a home, there’s another hurdle. With billions of dollars in delinquent student loan debt, a lot of people will have serious dings on their credit—ones that won’t go away for 7 years. Combine that with a tight home loan market—only 10% of mortgages were originated to borrowers with credit scores under 647—and you might just want to keep renting.
This article was provided by Bloomberg News.