From the WSJ:
President Barack Obama’s executive order Monday expanding student-debt relief is the latest sign policy makers recognize the serious economic burdens young adults face. But the modest change is unlikely to move the needle in ways that matter to investors.
The financial crisis exacted a heavy toll on the generation of Americans now entering their 30s. Facing difficult job prospects, little-to-no income growth and a historically unprecedented level of student loans, their finances are in a more precarious state than those of prior generations. That has cut into their ability to buy a first home, and is a major reason the housing recovery continues to disappoint.
Nor is the situation likely to improve. The possible results: Banks will see tepid demand for mortgages. Home sales and single-family home construction will be stuck below historic norms. Demand for goods like furniture and appliances, as well as services such as home repairs, will grow only slowly. And housing will continue to add less to the economy than in the past.
Start with the balance sheet of people in their 20s. Thanks to the expansion of the number of students attending college, and its rising cost, the share of 25-year-old Americans with student debt has grown to more than 44.7% last year from 25% in 2003, according to the Federal Reserve Bank of New York. The average amount of that debt expanded by 69.2% over that period.
Meanwhile, the drag from that debt on the ability of younger Americans to get a home loan has been growing. Before the crisis, the average credit score for people in their 20s and early 30s with student loans exceeded peers without such debt.
Together, these numbers mean it is more difficult for Americans to get a mortgage and make their initial home purchases. Ten years ago, 32% of those aged 27 to 30 years old had home loans. By last year, that had fallen to 21%. Homeownership rates for 25- to 34-year-olds have fallen from 49% in 2003 to 41.6% last year, according to the Commerce Department, steeper than the drop for older groups of Americans.
What’s more, the median income for Americans aged 25 to 34 has advanced more slowly than incomes overall, and has fallen over the past decade, adjusting for inflation. As a result, the recent rise in home prices has made homes less affordable for them relative to other Americans, despite mortgage rates that are still low by historical standards.
Their travails could have knock-on effects. Since the housing ladder’s bottom rung is in bad repair, demand for homes—as well as mortgages, furniture and appliances—may remain depressed for some time. Current homeowners may have a tougher time selling in the future.