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Student loans are holding back millennials who want to be homebuyers

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National Association of Realtors Vice President of Demographics and Behavioral Insights Jessica Lautz joins Yahoo Finance Live to discuss how student loan debt is preventing millennials from owning a home, rising trends, liquidity, the housing market, mortgage rates, and the outlook for real estate in 2022.

Video Transcript

- Well, rising home prices and housing inventory issues has made for a highly competitive housing market, but one main factor that millennials are shying away from home ownership is student debt. Here to break it down is Jessica Lautz, National Association of Realtors Vice President of Demographics and Behavioral Insights. Jessica, thanks so much for joining us today. So how much more are millennials spending now on housing and education, as well, compared to previous generations of the same age?

JESSICA LAUTZ: Yeah, so that's really the problem that we see when we look at budgets of those who are under the age of 25. So they're thinking about saving for a down payment for a home, but right now, with rising rents and also looking at their down payment, and just what they need to pull together with rising home prices, it's being very difficult for them to do it, and pay for their student loan debt at the end of the month, as well.

- What about some of the pandemic relief we've been seeing regarding student loans? Has that helped open up or free up any liquidity for these millennials as they search for their first home?

JESSICA LAUTZ: Yes. For 38% of student loan debt holders, we know that the pandemic, it did get them closer to paying down their student loan debt. So that's been a very big help because not only did they take advantage of these pandemic relief programs, they were able to move to more affordable areas. They were able to move in with their parents. And they cut spending on restaurants and entertainment, like the rest of us did, as well.

- Do you see the housing market, you know, seeing any meaningful growth this year? Because inventory is at an all-time low. Prices continue to be astronomical. So many are priced out of it.

JESSICA LAUTZ: Yeah, it is really difficult. And right now, we are expecting that people will be interested in entering the housing market, but it's very difficult when they see these double-digit growth in prices, but then also the extremely limited inventory, the lowest amount of inventory that we actually have reported back to 1999, when we first started collecting that data. So it's very hard for a home buyer to find a home when there's none for sale right now.

- We know that buying a home is still the number one way to build wealth, but what are millennials to do if they're strapped with all of this debt? What are some ways that they can sort of see their way clear to maybe save a little bit more at the end of each month so that they'll have that down payment and eventually be able to afford the home?

JESSICA LAUTZ: Yeah, and I will say, for the typical millennial that's out there, they're thinking this is an eight-year timeline for them to really be able to pay down their student loan debt and save for a home. So thinking about this long-term, thinking about cutting spending where you can, saving where you can, maybe that's the tax return or a gift from loved ones that you can chock into savings right now, and really be able to save for that down payment. And maybe that's further off, but putting that away today can be a big boom for the future.

- And I'm speaking more broadly now. You know, what impact do you think rising rates will have on home prices? Because it hasn't stopped people from buying homes, even though mortgage rates have been rising already.

JESSICA LAUTZ: Yeah, I think there's a race right now to lock in those rates and know exactly what your payment is going to be for the next 30 years. But I think when we look towards looking at 2022 and rates rising even more, it's going to cut out folks who are really stretching, who are saving and trying to enter home ownership. But that might count out some buyers who are stretching into home ownership right now.

- You know, in addition to these student loan-- all of this debt surrounding student loans, you also have millennials dealing with sky-high rent prices. We actually talked about that on yesterday's show, how, you know, so many people have been basically priced out of the home buying market, they've run to the rental markets, and that's had prices there spike up, so it's hard to really catch a break. What is the best course of action for a young person if they know they ultimately want to become a homeowner? How do they deal with living expenses in the here and now?

JESSICA LAUTZ: It is very hard to juggle both rising rents and think about saving for a down payment. What we have found for successful home buyers, the number one thing that delays them is student loan debt. Right after that is rising rents. For those who entered home ownership in the last year, we've seen an elevated share they moved in with mom and dad in the last year. They were able to live with family because they could skip that rental payment and save for that down payment. That's not available to a lot of adults out there, but for some, that did become an opportunity.

- So what advice do you have, let's say, for millennials who maybe have some flexibility as far as how they work, where they work, they can work remotely? Are there certain regional areas where they can look to to find some sort of deal or some ability to get a foot in the door, so to speak?

JESSICA LAUTZ: Yeah, absolutely. And that's a good thing that has happened with the pandemic. And CEOs now are saying, I want to retain good talent. And to do so, you have to have either a hybrid workforce or a fully remote workforce. And so that's allowed a lot of employees to look at suburban areas, small towns. We actually know that, right now, for successful first-time home buyers and millennials, there's more of them purchasing in small towns than actually in urban areas. So this has definitely been an opportunity for home buyers today.

- When you compare millennials to past generations and how they were able to attain first-time home ownership, how does it compare? I mean, was it any easier for Gen Xers and for baby boomers? I'm sure each generation thinks that theirs had to have-- had to carry the highest burden.

JESSICA LAUTZ: Yeah, I think there's definitely a little bit of generational warfare happening right now when we talk about finances and the housing market. But as far as looking at this data historically, what we know is that, for those who are under the age of 35, as census is reporting it, we're looking at a generation currently that has lower home ownership rates compared to looking back all the way to 1982 in the data. And so they are definitely encountering hurdles more so than past generations. And it really is because a disproportionate amount of student loan debt, but then also those rising rents, as well.

- All right. And important to remember that millennial home ownership is still on the rise. OK, we will leave it there.