1 - It's high student debt:
Nowadays, younger Americans are becoming less likely to take out loans to buy a house or a car. One possible reason? They’re too overloaded with student debt.
. . . student debt has grown dramatically over the last decade — some 43 percent of Americans under the age of 25 had student debt in 2012, with the average debt burden now $20,326. By contrast, back in 2003, just 25 percent of younger Americans had debt, and the average burden was $10,649.
What’s particularly notable is that these student loans appear to be crowding out other types of borrowing. For a long time, younger Americans with student debt were more likely to own homes than those without — largely because college grads are likelier to have higher earnings. But that trend has reversed . . .
2 - It's underwater mortgages:
It is widely recognized that the fall in housing prices had a “wealth effect” that led homeowners across the country to cut back on spending. In the updated paper, Mian, Sufi and Rao measured how much more underwater borrowers probably cut back on spending compared to borrowers without an overhang of mortgage debt. (More precisely, they measured how much homeowners cut back on auto spending for each dollar loss of housing wealth. But that’s important; the decline in auto sales was a significant part of the economic contraction.)
The authors found that being underwater makes a big difference. . . Zip codes with fewer than 15 percent of homeowners only cut back only a little – spending only half a cent less for every dollar their home fell in value. But in Zip codes where more than 50 percent of homeowners were underwater, borrowers cut back five times as much – spending 2.5 cents less on car purchases for each dollar of reduced housing wealth.
