Student debt crisis

Even before the coronavirus pandemic, student debt has been one of the leading inhibitors of homeownership for young adults. Before the pandemic, borrowers ages 25 to 34 had, on average $33,000 in student loan debt. As a result, many of these young adults are buying homes much later in life and choosing to forgo starter homes altogether.

Each of the 8.1 million borrowers who are under 24 years old holds an average of $15,000 in student debt. This number is also likely to increase, as many of these borrowers are still in school, and nearly half of today’s undergraduates are borrowing more due to COVID-19. In fact, 33% are taking out at least $10,000 more in student loans than last year, according to a study by Real Estate Witch.

Given the current climate, many anticipate that today’s students will likely buy their first home even later than their millennial predecessors or become perma-renters.

Unaffordable cost of living

Because of insurmountable debt, nearly 70% of millennials told Business Insider than they cannot afford to buy a home — and of the millennials who do own a home, approximately two-thirds have buyer's remorse largely because of the plethora of hidden costs that come with homeownership.

To circumvent these obstacles, many young adults have chosen to rent instead. However, with median rent prices in the U.S. at $1,700, saving for a down payment while renting can be almost impossible — especially when the average renter earns just shy of $39,000 per year, and the Nation Low Income Housing Coalition says more than half of all renter households were cost burdened before the pandemic.

Due to these circumstances, both millennial and Gen Z renters were largely unequipped to handle the drastic income loss as a result of COVID-19 and have been hit particularly hard as a result.

No relief

To make matters worse, federal emergency relief funds have not been enough for many young people to keep their dreams of financial independence alive.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act that Congress passed at the end of March allowed homeowners to defer mortgage payments for a year but did not allow tenants to defer rent payments. Although the CARES Act did ban evictions for tenants living in a single-family or multifamily property backed by a federal mortgage, this moratorium only applies to the 28% of renters who live in this category, leaving more than 30 million U.S. renters without assistance.

Although the CARES act expired in late July, on September 1, the Centers to Disease Control and Prevention announced that landlords cannot evict tenants until 2021. However, just like with the CARES Act, this doesn't mean that tenants don't have to pay rent. Even if they miss rental payments now, they still have to pay them at some point.

Moreover, the federal government's emergency relief for student loan borrowers is set to expire by September 2021.

Moving back home

Due to the financial strains that COVID-19 has caused, 39% of younger millennials (ages 24 to 29) say they are moving back in or planning to move back in with their parents. And nearly one-third of college students plan to live with their parents this fall as opposed to on campus or with roommates, according to the Real Estate Witch study.

For a generation who has already struggled to build personal wealth, this setback is potentially devastating for the younger generations. For recent graduates, the instability of the markets, grim job prospects and high unemployment rate have left many feeling hopeless about the possibility of financial freedom.

Savings and silver linings

They say every cloud has a silver lining. Although living with your parents might cramp your style, rooming with your mom and dad is a great way to save money and quickly pay off debt. And for those millennial homeowners with buyer’s remorse, interest rates are reaching historic lows, making now a great time to refinance.

Additionally, savvy young adults who plan to buy a home in the future can take advantage of this time to start planning and educating themselves about cost-saving tactics for first-time home buyers.

For instance, home buyer rebates allow buyers to get back a portion of their agent’s commission fees, although they are not available in all states. Many states do, however, offer tax credits for first-time home buyers, which can amount to a significant portion of your home’s purchase price. Both rebates and tax credits can be used toward down payments, closing costs and more.

Using a discount broker is also a great way to cut costs. Reali, for instance, offers listing-fee discounts for home sellers and commission rebates for home buyers in California.

Digital new world

The pandemic has also forced everyone to adapt to a digital environment, which in turn has made numerous things more accessible, including real estate.

Today, a first-time home buyer in Mississippi can peruse and purchase property in Florida from the comfort of their own home thanks to innovations such as virtual showings, e-contracts and digital closings. Not only that, but there are also numerous apps that make investing in property super easy for those new to real estate.

Hope for the future

COVID-19 has turned everyone’s world upside down, and the next generation of young home buyers faces an uphill battle; however, there is still hope for the real estate market.

Since the initial COVID-19 slowdown, home buyer demand has increased to pre-pandemic levels. Moreover, with the rise of remote work, many are exploring housing options outside of overpriced city centers, and the next generation will likely not need to live in metro areas where company headquarters are located. In turn, they will be able to save the money they’d normally spend on long commutes or eating out.

Of course, the market is far from fully recovered, and there will be many hurdles to overcome. However, with some foresight and proper planning, homeownership is possible for the next generation.

About the Author

Ben Mizes

Ben Mizes

CEO of Clever Real Estate

Ben Mizes is the CEO of Clever Real Estate, the online platform that helps you find a top-rated, full-service real estate agent for a fraction of the traditional cost.

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