Young, Educated, Indebted Americans Unable To Purchase Homes
Is this their "New Normal"?
Based upon a 2011 report published by the Government Accountability Office (GAO), non-seasonal vacant properties have increased. The study says, “[These] properties have increased 51 percent nationally from nearly 7 million in 2000 to 10 million in April 2010, with 10 states seeing increases of 70 percent or more. High foreclosure rates have contributed to the additional vacancies.”
Since many Americans have defined the “American Dream” as owning a home, the high number of foreclosures has led to a new level of political consciousness about wealth and power in the United States. This is most evident in the message about growing economic inequality conveyed by Occupy protesters, a movement which began in lower Manhattan on September 17, 2010 and quickly spread across the nation and eventually the globe. Moreover, many critics believe the banks should be held accountable for actions they took that led to the U.S housing crisis, which began to crumble in 2008.
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In late January, for instance, MoveOn.org urged Americans to sign a letter to President Obama about bank fraud. The petition expressed urgency, stating, “Reports are out that in the next 48 hours, President Obama could make the call on whether to hold Wall Street accountable and open an investigation into the banks' role in the housing crisis, or agree to a sweetheart deal that lets them off the hook.” (On January 19, 360,000 Moveon.org members signed a similar petition, asking the President to investigate).
In President Obama’s State of the Union speech, he responded to these demands and said he planned to create a new Federal Crimes Unit. He added, “I’m asking my Attorney General to create a special unit of federal prosecutors and leading state attorney general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.”
On top of this highly tense situation and the political awareness that has spread across the country about the role the banks played in the housing crash, there is another interrelated crisis: the student lending crisis. In 2012, outstanding student loan debt will surpass $1 trillion. In addition, young, educated people have borrowed more than previous generations.
Lauren Asher, president of The Institute for College Access and Success, said in a 2011 NYT article, “If you have a lot of people finishing or leaving school with a lot of debt, their choices may be very different than the generation before them.” She added, “Things like buying a home, starting a family, starting a business, saving for their own kids’ education may not be options for people who are paying off a lot of student debt.”
When it comes to living on their own, a 2010 study by TwentySomething Inc. found that 85% of college grads were planning to move home.
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Alli Russo, 24, is one of millions of young Americans who currently live at home. She lives in Tobyhanna, Pennsylvania, is a full-time student at Central Penn College, and works 27 hours a week as a pharmacy technician. Russo estimates that she owes $50,000 in student loan debt. She had been working full-time, but her employer recently cut her work schedule. In addition, Russo also has a new car and she has to make monthly payments on it, so, she said, “Moving out of my house any time soon is not an option.”
Russo added, “[The situation] is sad, because my parents were married by the time they were 21 and had their own house at 22!” While she wants to live on her own and not under the same roof as her parents, she feels fortunate, because they are both very supportive. Russo received her Associate’s Degree in 2008, which she paid for out of pocket. She then went on to a 4-year institution and took out student loans. She will finish her Bachelor’s Degree in March in corporate communications, and is completing everything online.
When asked what her Associate’s Degree was in, Russo said, “[It] was in medical administration. But that’s the problem that a lot of people face. They go to school for one thing...and I couldn’t find anything in my job market, so I went back to school for something else.” Russo also expressed frustration about the fact that she is 24 and still in school. She said about half of her friends are in a similar situation. They, too, are indebted, struggling to stay afloat, lacking independence and either unemployed or in a position that does not satisfy them.
When Russo thinks about her student loan debt, she said it causes her to have panic attacks. She is also terrified that she might one day receive a bill in the mail that she will be unable to pay. Although Russo doesn’t think about the amount of debt she has on a daily basis, student loan debt is a common topic that she discusses with her friends. Like her, all of them have student loan debt. “We talk about it, and say, ‘Yeah, we’re going to be paying this off until we’re 50!’ We kind of laugh it off, because what else can you do? You have to make light of the situation and understand that you will have to pay if off eventually.”
Experts are seeing the connection now between student loan debt and young people being unable to purchase homes. Rick Palacios Jr., senior research analyst at John Burns Real Estate Consulting (JBREC), recently wrote, “Student loans are going to be yet another hurdle for the housing market to overcome. Faced with mounting student loan debt, poor job prospects and stagnant wages, an increasing amount of 25-to-34-year-olds (a prized demographic for the housing sector) have moved back in with their parents. Almost 6 million 25-to-34-year-olds now live with mom and dad, up 26 percent from when the recession started in 2007.”
When asked how homebuilders have responded to this situation, Palacios wrote in an email, “Homebuilders have cut back on new supply to almost unprecedented lows, so I don’t think they’re building too many homes. Many builders have in fact started to modify their product and offer multigenerational homes – understanding that more and more college graduates are moving back home. Others are repurposing product that was originally intended for single-family housing or townhomes to be rental projects, so they are definitely adapting to the market.”
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Charles Moore, an urban and regional planner who lives in Albany, N.Y., paints a bleak picture of what this means for the future if young people are unable to buy homes.
“The most significant issue I see is that, by far, the main source of wealth for most families is in owning their own home. An enormous segment of our population relies on the equity in their home for retirement purposes and if that possibility is diminished without something else to takes its place there are enormous ramifications for their future retirement. This combined with pensions being eliminated, 401ks diminished and the increasing bubble and bust environment of the stock market leaves the country with a very insecure view of the future to put it mildly. Not to mention, homeownership has been the American ‘norm’ or ‘dream,’ along with the white picket fence for millions for the last hundred years (both culturally through movies, tv, media, etc., and governmentally with its many incentives for home ownership). For a new generation of Americans to be excluded from that possibility provides an insecurity not seen since the depression. Furthermore, for the last hundred years, homeownership has meant a stake in the community and neighborhood. When that is diminished the consequences can be clear and negative at the same time. When ‘community’ or a sense of place is diminished there are many certain and varied ramifications,” he said in an email.
Does this mean that a shift to a renter society is bad? Moore doesn’t think that is the case.
He wrote, “On the single issue of converting from a homeownership society to a renter society, it is not clearly bad to me...If you look at many European communities I think that homeownership is not as important or prevalent. They of course have a much larger safety net. Also, the environmental impacts associated with sprawl (spread out development) would be lessened if we had more renters living in more urban, compact areas - this of course is an unintended consequence of having less home ownership.”