By Agatha So, Policy Analyst, Economic Policy Project, NCLR
While American families who bought a home before the Great Recession were likely most concerned with the interest rates of their home loan, today’s millennials might be more preoccupied with the interest rates and repayment plans on their student loans.
Nearly 70 percent of bachelor’s degree recipients leave school with debt. Student loan debt is one of the largest burdens carried by Americans today, second only to mortgage debt. As a result, it comes as no surprise that student loan debt may be holding back millennials, especially older millennials, from buying a home.
Millennials only make up 16 percent of today’s homeowners. Meanwhile, they make up one of the largest, and most racially diverse generations in history. Latino millennials, who make up more than 20 percent of U.S. millennials overall, seem optimistic about their future, making this generation of Latinos a potential driver of homeownership demand in the coming years. In fact, in a 2016 NCLR poll of Latino voters, 97 percent of voters 18-35 years of age reported that they wanted to buy a home, compared with 89 percent of voters 36 years and older.
Yet, Latino millennials are entering the home-buying market after an entire generation lost most of their housing wealth to foreclosure, and at a time when lenders are only really making home loans for borrowers with really good credit and little to no debt. While the overall Latino homeownership rate idles at 46 percent, it remains unclear how and if future generations will qualify for a home loan and consequently build wealth.
Even Housing and Urban Development (HUD) Secretary Ben Carson is concerned. Last week, Secretary Carson spoke at a housing policy symposium, offering ways for the housing industry and lenders to make it possible for millennials to achieve the dream of generations before them. It is important to note that adults younger than 35 in previous generations had higher rates of homeownership than today’s millennials.
According to one housing industry report, in 2016, nearly 35 percent of millennial homebuyers bought using a Federal Housing Administration (FHA) loan. In his remarks, Carson suggested that FHA’s proposed changes to rules guiding condominium developments, along with Fannie Mae’s decision to increase the amount of debt a borrower can carry and still qualify for a home loan, could open doors for millennial buyers.
In a report to be released later this summer, NCLR takes a closer look at the views of young Latinos and discusses the challenges they face, as they stand in the outskirts of the homebuying market. In the summer of 2016, NCLR surveyed more than 800 young Latinos between the ages of 18-36 years of age from across the country.
More than 68 percent of all respondents had used a student loan to pay for college. In addition, more than three-quarters (77 percent) of respondents who lived at home or rented reported they wanted to own a home one day. The millennials hoping to be homeowners reported that the biggest challenge to buying a home was their ability to save for a down payment, and that they were unfamiliar with the mortgage process.
For Latino millennials to drive homeownership demand, it’s critical that all sectors of the housing industry work together to ensure that creditworthy borrowers can qualify for an affordable mortgage. Home lenders should participate in all available programs to improve millennial borrowers’ access to down payment assistance, and make loan terms and conditions clear.
Lenders must commit resources to help borrowers understand how the mortgage process works and how their student loan payments will be factored into their debt-to-income ratio. And they can start by increasing partnerships with community-based, HUD-approved housing counselors who can walk borrowers through the process and help them qualify for the affordable home loan products.
If key players in housing don’t act now to support qualified millennials wanting to move into homeownership, it’s unclear how well the nation’s housing market and economy will completely recover from the Great Recession.