Parents basement-End of an era?

Student debt has risen to historical levels in the 21st century.  As a student myself, I have seen firsthand the effects that student debt has while in college.  Most students who are taking on loans to pay for college are incredibly fiscally conservative and are usually working at least one job during college to help keep loans to a minimum.  Unfortunately though more students are taking on more debt and according to the New York Fed, this is causing graduated students to move back in with their parents.

“A $10,000 increase in student debt per graduate in a U.S. state is associated with an additional 2.9 percentage point rise in the rate of 25-year-olds living with parents…There is a “clear positive correlation between a state’s student debt growth and the rate at which its 25-year-olds live with their parents,” the New York Fed says.”-Wall Street Journal

The appeal for recent graduates to move in with their parents is understandable though.  The money one saves on not only rent but also electricity, water, heating and day to day essentials could instead go towards paying pack student loans and getting ahead of payments.  With the horror stories of people paying off student debt well into their adult years, it makes sense to move back in with your parents. Another reason why graduates would need to move back in is that acquiring a house often necessitates taking out a mortgage which causes more loan payments.

“The New York Fed also says it’s not all about the economy. Stronger growth and improved job prospects help young people move away from their parents, but rising local house prices can force others to move back home. “These two effects partially offset each other,” the New York Fed says. Silicon Valley is a great example: Even though its economy is doing well, high rental and housing costs are keeping kids at home.”

But there may be a light at the end of the tunnel.  According to the New York Fed, the amount of 25 year olds living at home has leveled off significantly since 2012.  Why is this?  It could be explained by a sharp increase in the amount of households since the lows of 2009.  This could be caused by a multitude of things but I believe that it could be explained by the low housing prices motivating young adults to move out of their parents households and establishing their own.  According to the Wall Street Journal, there is not enough data to justify these claims but from the recent graduates I know that have moved out, the low housing prices were the primary factor.

Sources:

http://blogs.wsj.com/economics/2015/02/04/yes-more-young-adults-are-living-with-their-parents-and-its-probably-because-of-student-debt/

2 thoughts on “Parents basement-End of an era?

  1. Nate McCrumb

    Good topic. You bring up a good point about the increased supply of households in the market. I think it is also important to consider the amount of young people who move into apartments. I feel there is a large number of 25-year-olds who still rent in apartments before purchasing a house. Either way, it would be very reassuring to see that less young adults will be forced to move in with their parents.

  2. Tor Martinsen

    I wonder if there are any economic incentives created for other industries besides the housing markets when children move back in with parents. Since they are saving so much money on rent and utilities I wonder if this is felt with increase in consumer discretionary or consumer staple goods perhaps? Very interesting topic nonetheless!

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