Is the ‘Lost Generation’ Feeding the Apartment Boom

The June 10, 2014 Wall Street Journal had an interesting article about the impact that the “lost generation” is having on the US housing market:

The financial crisis exacted a heavy toll on the generation of Americans now entering their 30s. Facing difficult job prospects, little-to-no income growth and a historically unprecedented level of student loans, their finances are in a more precarious state than those of prior generations. That has cut into their ability to buy a first home, and is a major reason the housing recovery continues to disappoint…

Meanwhile, the drag from that debt on the ability of younger Americans to get a home loan has been growing. Before the crisis, the average credit score for people in their 20s and early 30s with student loans exceeded peers without such debt.

That changed in 2009, when student-borrower credit scores fell below those of nonborrowers. Since then, the gap has been growing wider: the average 25-year-old with student debt last year had an Equifax risk score of 626, compared with an average of 642 for one without college loans.

Mortgage lending has all but dried up for borrowers with credit scores that low. A decade ago—before the go-go years of the housing bubble—people with FICO scores lower than 640 made up around 22.5% of mortgage borrowers, according to CoreLogic. Today, that group receives just 2.47% of mortgages…

Together, these numbers mean it is more difficult for Americans to get a mortgage and make their initial home purchases. Ten years ago, 32% of those aged 27 to 30 years old had home loans. By last year, that had fallen to 21%. Homeownership rates for 25- to 34-year-olds have fallen from 49% in 2003 to 41.6% last year, according to the Commerce Department, steeper than the drop for older groups of Americans.

The longer this goes on the longer young folks will be renters, which means that the pool of young customers for the apartment industry will continue to deepen.