Photo: Ken Gordy Ford/Flickr
Today, younger American households, or those under 35 years of age, are more likely to have an auto loan than a mortgage.
The availability of auto-loans and the lower credit scores needed to secure an auto loan compared to obtaining a mortgage are the primary reasons behind the rise in auto loans among younger households over the last six years, according to a recent report by the National Association of Home Builders (NAHB).
Nationally, the share of all households with mortgage debt exceeded the number with auto loan debt by 8 percent in 2016. However, among households where the head of the house was 35 years old or younger, the share with auto debt exceeded mortgage debt by 11 percent.
Yet historically, the share of auto loan debt in younger households has exceeded mortgage debt, except in 2010 when mortgage debt overtook auto loans.
The share of younger households with auto loans has risen steadily since 2010, matching levels recorded in the 1990s. At the same time, the incidence of a mortgage loan in this cohort has steadily declined through 2016.
“And while technically a decline, the incidence of home mortgage debt on the balance sheets of households under the age of 35 stabilized in 2016,” writes NAHB in the digital release.
But as a result of increased auto ownership among younger households, the auto ownership rate has seen a faster recovery than the homeownership rate. The share of younger households with auto loan debt has returned to “normal” levels through 2016.
“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,” writes NAHB.
The national homeownership rate fell to a historic low following the Great Recession. The financial crisis had a profound impact on the under 35 cohort with younger households recording the most significant declines in homeownership in its aftermath, says NAHB.
The elevation seen in the number of auto loans among younger households is likely the “relative ease of obtaining auto debt relative to mortgage debt,” says NAHB.
The median credit score associated with mortgage originations rose steadily between 2006 and 2016. It also rose faster than the median score associated with auto loan originations.
And, by 2011, the gap between the median scores reached 80 points, more than double the difference prior to 2006. The gap was 60 points in 2017, remaining “closer to its heights than pre-housing bust norms,” according to NAHB.
Click here to read the entire release.