The NY Fed has a great little blog called Liberty Street Economics (their address is on Liberty Street in NYC). They mostly post commentary on their own research and one post from last week was about the borrowing habits of young people:

Here we pose two questions: What part have young borrowers, with and without student debt, played in the recent housing and auto market recoveries? And, have the housing and auto purchases of young student borrowers at last accelerated past those of nonstudent borrowers, to once again reflect their skill and earnings advantages?

In English, they’re saying what part have young people played in the recovery of the auto and housing industries, and within this population have people with student loans resumed their greater amounts of borrowing?  We assume people with student loans earn more, therefore can also afford to borrow more.

people under 30 with housing debt

The answer is young people have only played a small role in these recoveries.  They’re borrowing less and less.  And those with student loans are borrowing further less, even if they used to borrow more.

The post goes on to posit some ideas on why this may be happening.  For one, student loans are becoming a huge burden.  A 29 year old in 2003 and one in 2013 likely have measurably different levels of student loan debt.  With so much debt it’s more difficult to save up and buy a house.  The other idea is that neither group in the chart has access to easy credit.  It’s simply more difficult to borrow today than it was a decade ago.  Lenders have tighter rules and are taking on less risk.

Both of these ideas make sense intuitively.  And such explanations are often used to help us understand what’s changing economically.  But there are other factors which seem to be discounted too often.  For one: people are changing.

When you compare the same age group over time, you’re really looking at very different populations.  When you were 17, what did you have in common with someone who was 27?  That’s close to a generational difference.  Younger people today seem to be more mobile and are slower to put down roots.  Is that a function of a constrained job market or our inclination to jump around to a few different jobs early in our careers.  More and more people are moving to cities as well.  Housing costs more there too.  And even though this chart is only ten years, the 27 year old in 2013 will live a bit longer than the 27 year old in 2003; they can afford to take a little longer to settle down.

None of this may explain this chart at all.  But simple economic explanations just aren’t sufficient sometimes.  Demographics change.  As do priorities.  Student loan debt and tightening credit may be one thing, but for another, a lot of these people just watched their parents get annihilated in the financial crisis.  Buying a house to them could be extremely scary.

 

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categories: economics, Housing, loans, personal finance, psychology