FIRE Economy | timiacono.com - Part 4

Pew Research has compiled a pretty intriguing report on what burgeoning student loan debt is doing to the finances of those young Americans who pursue higher education. There are lots of good charts packed with, sadly, unsurprising data about what a burden this debt is for those just starting out in their careers.

Student debt burdens are weighing on the economic fortunes of younger Americans, as households headed by young adults owing student debt lag far behind their peers in terms of wealth accumulation, according to a new Pew Research Center analysis of government data. About four-in-ten U.S. households (37%) headed by an adult younger than 40 currently have some student debt—the highest share on record, with the median outstanding student debt load standing at about $13,ooo.

An analysis of the recent Survey of Consumer Finances finds that households headed by a college-educated adult without any student debt obligations have about seven times the typical net worth ($64,700) of households headed by a young, college-educated adult with student debt ($8,700). And the wealth gap is also large for households headed by young adults without a bachelor’s degree: Those with no student debt have accumulated roughly nine times as much wealth as debtor households ($10,900 vs. $1,200). This is true despite the fact that debtors and non-debtors have nearly identical household incomes in each group.

I have no idea whether my college loan experience was typical at the time, but back in the early 1980s I had racked up about $7,500 in student loans when I picked up my diploma and began my first job as an engineer making $30,000 a year.

My guess is that most college graduates today who enter the workforce with college loans to service would be quite happy with a 4-to-1 ratio of annual income to debt, which makes paying this off quite manageable. That ratio is probably a lot closer to 1-to-1 today.

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Housing Starts, Permits See Big Rebound

The U.S. housing market received some rare good news this morning as the Commerce Department reported(.pdf) that housing starts and permits for new construction both exceeded analysts’ estimates by wide margins, though the gains were due largely to multi-family home construction as activity for single-family homes was little changed.

Housing starts jumped 13.2 percent, from an upwardly revised annual rate of 947,000 units in March to 1.07 million units in April, far above expectations for an increase to a rate of 980,000 units and some 26.4 percent higher on a year-over-year basis.

Housing permits rose 8.0 percent, from an upwardly revised rate of 1.00 million units in March to 1.08 million units in April, considerably better than expectations for an increase to a 1.02 million rate and 3.8 percent higher than a year ago.

In both cases, the surge was due almost exclusively to volatile multi-family home building (of five or more units) where starts jumped 39.6 percent and permits rose 19.5 percent. Single-family home starts rose just 0.8 percent last month and permits edged 0.3 percent higher, making the headlines for this report much less than meets the eye.

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The Fed’s Not-So-Hot Growth Forecasts

Via Deutsche Bank and this item from Pawel Morski’s Twitter feed comes a rather embarrassing summary in chart form of the Federal Reserve’s dismal record at predicting growth for the U.S. economy in recent years. About the only nice thing one could say about this is that they’re at least moving in the right direction.

Let’s just hope that central bank economists don’t underestimate future inflation as badly as they overestimated growth, something we may get a first hint at with tomorrow’s inflation report following today’s big upside surprise for wholesale prices as detailed here earlier.

Here’s the data on student loans and home ownership that’s been getting a lot of attention in the last day or so in chart form from its original source at the New York Federal Reserve.

Just in case it isn’t already obvious, many of those youngsters aged 27  to 30 who should be most able to buy property because they went to college and are making more money than they would otherwise are not doing so, in part at least, due to their student loan debt.

What’s really surprising about this is that, over the last few years, the implied home ownership rate of those with student loans has actually fallen below those who have no student loans, a group that, presumably, includes lots of college graduates who got through college with little or no debt along with those who never felt the need for higher education.

Of course, the bigger picture here is that overall home ownership amongst the younger set has fallen precipitously since the financial crisis, dropping by nearly a third, from over 30 percent to just over 20 percent.

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