Young adults between the ages of 25 and 34 are still struggling in the job market, bad news for the housing industry that is relying on first-time homebuyers to bring the recovery into full fruition.
According to Friday’s report from the Bureau of Labor and Employment Statistics, only 74.8% of young adults are working — the lowest number in 12 months and far below normal levels. During the recession, between 73% and 74% of young adults were employed.
Consequently, the unemployment rate for young adults rose to 7.8% in August, representing the highest level since February.
In addition to their struggles to find a job, many young adults are buried in a mountain of student debt. In fact, student loans are now the largest component of non-mortgage and home equity debt at $994 million, a second quarter report from Kroll Bond Ratings revealed.
“The ongoing increase in student loans is disconcerting in light of the elevated unemployment levels for younger age groups,” the report stated.
So how are these unemployed and indebted young adults supposed to buy a home and help the liquidity of the housing industry?
Mark Palim, vice president for applied economics and housing research at Fannie Mae, told HousingWire that lack of job security is the biggest factor keeping young adults out of a home. "If you don’t have income and if you don’t think you’re going to be living somewhere for awhile because of a lack of job stability, then it makes perfect sense that you’re not going to be buying a house," Palim said.
Palim added that student debt is inhibiting the ability to come up with a downpayment for many young adults. The main idea is that it stretches out the amount of time it takes to pull together enough money, said the VP.
For those young adults who are able to qualify for homeownership, they are often forced to handle a smaller mortgage.
"The focus of the industry now is hopefully on sustainable homeownership," said Palim, who added that people want a mortgage they can actually afford — something many homeowners struggled with during the recession. "Someone who doesn’t have a job and has a lot of student debt shouldn’t be buying a home," he added.
While many homeowners who were on the verge of retirement, with funds set aside, were forced to spend that money on other things as money got tight during the recession. This translates into more people in the 55-plus-age group still in the labor force.
"They’re not leaving the labor force,” said Palim. Because many older adults are sticking around in the job market, there is less availability for young adults.
It may be some time before young adults can enter the housing market. In the meantime, many are resorting to renting either single-family homes or within the multifamily sector. "Housing is reflecting the overall struggles going on in the economy," Palim concluded.