Household Debt Changes the Face of Home Ownership


In 2008, total household debt peaked at 12.9 trillion dollars. Balances began falling from the all-time high in the third quarter of 2008 due to the recession, which led to stricter borrowing criteria from lenders and a significant increase in charge-offs. Consumers defaulted on both homes and unsecured debt payments, leading to a massive number of foreclosures and credit card account defaults. Three and a half years ago, consumer debt balances once again began a steady incline, reaching 12.6 trillion the last quarter of 2016.

Changes in Consumer Borrowing Habits

The New York Fed Consumer Credit Panel studied data provided by the Equifax Credit Bureau and learned that much of the new debt incurred by consumers since 2012, shifted from buying homes to paying for college and purchasing transportation. In 2016, the debt related to the cost of housing totaled nearly 1 trillion dollars below the 2008 debt levels. On the other hand, student loan debt increased by 671 billion, and auto loans rose approximately 367 billion.

College graduates today have less discretionary income and find it difficult to add a mortgage payment to their balance sheet when they face high student loan payments. Students who choose the extended repayment plan can take up to 25 years to eliminate student loan debt, which constitutes more than half their working career. Now, instead of buying a home and committing to a mortgage payment in their late 20’s and early 30’s, Millennials find they must channel their resources towards student loan debt reduction and car payments rather than home ownership.

The study revealed that those obtaining a higher level of education are more likely to buy a home. However, consumers with high levels of student loans, delay home purchases until educational loan balances decline, significantly impacting the housing market.