We at BlackRock have long contended that there is a certain irony to the fact that residential housing, the sector that helped undo the U.S. economy, is now one of the keys to a sustained recovery. Indeed, housing data have softened in recent months, to the extent that they garnered special mention in U.S. Federal Reserve chair Janet Yellen’s May 7 address to Congress. Specifically, Yellen noted that "readings on housing activity, a sector that has been recovering since 2011, have remained disappointing so far this year and will bear watching." These data will require close scrutiny, as employment related to the real estate sector — and the many functions surrounding it — accounted for a tremendous amount of the net hiring during the past decade and offers perhaps the best chance for tightening slack in the labor market.

Some market observers have recently argued, however, that homeownership rates are in the midst of a secular decline that could weigh on housing markets for decades. Veteran real estate investor Sam Zell of Chicago–based Equity Group Investments has suggested that the U.S. homeownership rate may fall to as low as 55 percent, a full ten percentage points below the present level. We are not so pessimistic on the prospects for residential housing in the years ahead, as market fundamentals and technical factors still appear favorable to us. But we share the concern over deep financial pressures facing potential first-time home buyers.

One underappreciated yet vital headwind to many young workers’ ability to purchase a home is the significant student loan debts many incur early in life. That dynamic is a catch-22: Whereas a college graduate is likely to see 1.8 times the lifetime earnings of a worker who did not complete postsecondary education, if that graduate has incurred a significant level of student loan debt to complete his or her studies, it diminishes much of that economic advantage.

Additionally, younger workers face a set of mounting economic pressures, from higher-than-average rates of unemployment — for example, just above 10 percent for those 20 to 24 — to stagnant wages and lower rates of labor market participation. Without question, educational attainment on average pays considerable dividends over the course of a worker’s career (see chart 1). But excessive levels of student indebtedness have begun to challenge this truism. Not only does this debt weigh on many young workers’ financial prospects, but it is also a headwind to housing market recovery and, more broadly, economic expansion.