Education level an indicator for young adult homeownership
Post-recession, educational achievement became a factor in determining whether a young adult decided to buy a home.
The level of education of those between 25 and 34 was not associated with homeownership before the economic downturn of the mid-to-late 2000s, found a study written by researchers from the University of Southern California and sponsored by Fannie Mae. However, having a college degree increased the likelihood of a young adult buying a home by nine percentage points after the recession.
This effect was seen primarily for non-Hispanic whites and blacks, but not for Hispanics. The authors said this finding needs further study.
The researchers looked at race, education, income and wealth of young adults, independent of their parents' socio-economic status.
Non-Hispanic whites with some college education were 15.3% more likely to be a homeowner after 2009 than a person without a high school diploma, and for those with a college degree where 12.4% more likely. For blacks, those numbers were 6.8% and 11.1%, respectively. However, for Hispanics, the highest likelihood for homeownership was seen for those with a high school diploma at 4.9%, dropping off to 3.2% for those with some college education and 0.9% for those with a college degree.
"Education may be a proxy for permanent income and employment stability during economic downturns and, all else being equal, was increasingly important in the post-recession period with the tightening of credit markets," the paper said.
From an underwriting standpoint, lenders are likely to place a higher premium on the borrower's education achievements "and the boost to expected lifetime wages and employment stability that it typically brings," the report said.
Alternatively, lenders could have been more sensitive to an applicant's job stability and earnings history, which are associated with their level of education, it continued.
Education levels could also be a substitute for financial literacy. More schooling could have given these consumers a better understanding of the home buying and mortgage lending process, the report said.