The Fed says student loans are smothering the housing market
Buying a house is a terrible investment. That said, a new paper from the Federal Reserve posits the reason young people are buying less than in generations past is not that they're smarter and savvier, but that they are more indebted.
What they're saying: "We estimate that roughly 20 percent of the decline in homeownership among young adults can be attributed to their increased student loan debts since 2005."
- The reduction in home buyers "represents over 400,000 young individuals who would have owned a home in 2014 had it not been for the rise in debt."
- "We found that a $1,000 increase in student loan debt ... causes a 1 to 2 percentage point drop in the homeownership rate for student loan borrowers during their late 20s and early 30s."
Yes, but: The Fed argued that student loan debt was an important but not "central cause" of the reduction in home buying. Researchers largely put the onus on tighter bank lending standards.
The bigger picture: The Fed also focused on additional harms from increased student debt.
- "We show that higher student loan debt early in life leads to a lower credit score later in life, all else equal."