Two million more adults ages 18 to 34 live in a household headed by their parents than before the recession, an increase from 28.2 percent in 2007 to 31 percent in 2011. Moody’s Analytics estimates that each new household leads to $145,000 of economic activity, suggesting that this delay in household formation could be slowing broader economic growth.
The CAP argues, moreover, that even young adults who want to take on mortgage debt could be prevented from doing so by new regulations on mortgage lending and debt:
Due to the implementation of new mortgage regulations under the Dodd-Frank Act, lenders are often requiring that homeowners have a 43 percent “back end” debt-to-income ratio to get a loan. In other words, combined monthly housing costs and monthly debt payments must not exceed 43 percent of one’s monthly income in order to qualify for a loan. For those with significant student debt, this debt-to-income ratio cap may well put homeownership out of reach.
And even those Millennials who qualify for a loan may still delay homebuying, or pass on it entirely. It takes twenty years for an average family to save enough for a 10 percent down-payment on an average house. If students are still indebted well into adulthood, this may lengthen the saving period dramatically. Given that experts elsewhere argue that our housing market is already overbuilt for our demographics, underbuying youth could put the whole industry and the whole country in a world of hurt.[Ball and chain image courtesy of Shutterstock]