Millennials are more likely to live with their parents rather than own their own homes, and it’s partly because of their student debt, according to a new analysis published by researchers at the Federal Reserve Bank of New York Wednesday.
The “increasing magnitude of student debt among college graduates appears to be driving young people home and keeping them there,” four New York Fed economists wrote in a note explaining their research.
Using the New York Fed’s proprietary dataset on consumer debt, the economist found that “a $10,000 increase in student debt per graduate in the state is associated with an additional 2.9 percentage point rise in the rate of living with parents.” That result held when the researchers controlled for other factors.
The analysis released Wednesday is one of the clearest indications that the rising cost of college and accompanying run-up in student debt is holding back young adults from home buying.
Federal Reserve chairwoman Janet Yellen and prominent business executives in the housing industry have suggested that rising student debt may be stymieing a faster housing market recovery from the subprime crisis of 2008.
Total student loan debt has spiked from just over $250 billion in 2003 to over $1.1 trillion in 2014, according to the New York Fed’s data, which is taken from the consumer credit reporting company Equifax.
The average student loan balances at age 25 for those paying off student debt doubled over the period, from $10,649 in 2003 to $20,932 in 2013.
While student loan balances were rising, homeownership was dropping, and more college graduates were moving back in with their parents.
The share of 25 year-olds living with their parents grew from under 30 percent in 1999 to near 50 percent in 2013, in the New York Fed’s data.
In 2003, the researchers found, 30 year-olds were twice as likely to own a home as to live with their parents. By 2013, they were as likely to be staying with their parents as they were to own their own place.
By 2013, all the states in the study had parental co-residence rates of more than 30 percent, and in 12 states, more than half of 25 year-olds lived with their parents.
Those states included mid-Atlantic states like New Jersey and New York, but also Midwestern ones like Michigan and Illinois in addition to California and Florida.
The rise in college grads living at home was not necessarily explained by the recession. The researchers found that economic growth had an ambiguous effect on home ownership for young people. In part, that’s because faster economic growth drives up house prices, making it harder for first-time buyers to get a home even if they’re making more money.
