Even though rallying home prices appear to be boosting the economy, a lot of young people are being shut out of the recent booming housing market due to student debt. According to a recent article by Fox Business, student debt is having a ripple effect in the housing market. The article cites a new study from the International Institute of Finance (IIF) that indicates that young people can't afford to buy homes.
Rising tuition costs
With two sons in college, I know firsthand that tuition costs have gotten out of hand. I also remember how student loan debt prevented me from purchasing my first home in my 20s. Young people saddled with tens of thousands of student loan aren't going to be able to afford to purchase homes. My sons have been doing their best to work their way through college so they don't have to graduate with a lot of debt. But student debt is not the only problem.
According to the report from IIF, the average wage for 25-to-34-year old workers has decreased by 10 percent since 2003. Unless my children go into fields that pay higher salaries, they may have a difficult time getting qualified for a decent home. Experts say the home ownership rate could drop to levels not seen since the 1960s because more young adults are renting.
Renting versus buying
As the demand for rentals increases, the rental prices may continue to rise. While I'd welcome young families to live in my neighborhood, a lot of them can't afford the high rent. I've noticed more multi-generational living situations as young adult children move in with their parents. It makes sense to share homes when the cost of housing continues to rise.
Watching the credit scores
Because it's difficult for young people to qualify for home mortgages, I'm encouraging my children to work on their credit scores just as they work on getting good grades in college. According to the IFF report, only 9 percent of people ages 29-to-34 received approval for first-time mortgages between 2009 and 2011. I'm sure young adults in their early 20s were even less likely to get a mortgage.
What's sad about the housing market is that so few young people can participate when interest rates are low. By the time my children are in the position to purchase their first homes, the mortgage rates may be back up to double digits. It seems as though everything in this economy operates in the extreme. Either we are in the bull market or bear market. Housing prices and interest rates fluctuate to the extreme. I'm encouraging my children to save their money as cash so they can afford to put down as much possible on their first home purchase. If interest rates skyrocket, they will be in good financial positions. Once baby boomers sell their homes to move into nursing homes and assisted living facilities, there should be a huge supply of houses. It remains to be seen whether the demand for housing will meet that supply.
*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.
More from this contributor:Because I refinanced I can quit my job
- Real Estate