Eye On Housing
Homeownership provides a distinct advantage for wealth accumulation. Although many households desire to purchase a home, the share of households living in owner-occupied housing remains low, following a steep decline associated with the Great Recession. Younger households, those under the age of 35, experienced the biggest declines in homeownership, although recent evidence suggests that the homeownership rate among these households is rising.
In contrast, analysis of the Survey of Consumer Finances (SCF) indicates that younger households are more likely to take out auto loans to purchase cars, leading to a faster recovery in auto ownership than homeownership. This is also reflective of the relative ease of obtaining auto debt relative to mortgage debt. While the incidence of auto loan debt among younger households has returned to more normal levels through 2016, the share of younger households with home mortgage debt remained low.
Across all households in 2016, the share of families with home mortgage debt (42%) exceeded the percentage of households with auto loan debt (34%). As illustrated by the figure above, while this difference held true for age categories 35 and above, families where the head was under the age of 35 were more likely to have auto loans than home mortgage debt.
As shown in Figure 2, historically, the share of young households with auto loan debt typically exceeded the share with home mortgage debt. According to analysis of the SCF, 2010 was the only year in recent years for which the incidence of home mortgage debt exceeded the proportion of households with auto loan debt (Keep in mind that mortgage debt is a not perfect indicator of homeownership because some households own free and clear of a mortgage). Although the incidence of mortgage debt fell over the recession, the incidence of auto loan debt recorded a greater decline.
Since 2010, the share of households under the age of 35 with auto loan debt has risen, returning to the rates that prevailed in the 1990s. In contrast, the incidence of home mortgage debt has continued to decline in this age cohort. While technically a decline, the incidence of home mortgage debt on the balance sheets of households under the age of 35 stabilized in 2016.
The widening gap between the incidence of auto debt and mortgage debt since 2010 for households under the age of 35 may reflect the relative ease of obtaining each respective loan. Figure 3 shows the difference between the median credit score required for mortgage origination and auto loan origination from the Federal Reserve Bank of New York’s Household Debt and Credit Report since 2004.
The chart illustrates that the spread between the median credit score associated with originations of the two consumer loan products began to rise in 2006. Not only was the credit score associated with mortgage originations rising, but it was rising faster than the score associated with auto loan originations. By 2011, the gap between the median credit scores reached 80 points more than double the difference that prevailed prior to 2006. Since 2010, the spread has narrowed somewhat, but at 60 points in 2016, remains closer to its heights, than the pre-housing bust differences.
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