College choices are influenced by fluctuations in home values, according to new research that suggests the nation’s housing bust could have a long-lasting negative affect on the education and earning potential of young adults.
High school students from households experiencing an increase in home values are more likely to apply to a “flagship public university” and to graduate from college, according to a new study from the National Bureau of Economic Research, a Cambridge, MA, non-profit group that aims to promote economic literacy.
A $10,000 increase in housing wealth during a student’s high school years increases the chances a student will attend a flagship public university by 2 percent, and decreases the chances a student will attend a community college by 1.6 percent, according to the study. The student also has 1.8 percent greater chance of graduating from college.
The study suggests that an increase in home prices affects college choices by influencing high school students to apply to a greater number of colleges, both to flagship and non-flagship four-year schools. The college choices of students from lower and middle-income families are more sensitive to changes in home values because housing wealth is of “central importance” to these households, according to the study. (Millionaire Corner research shows that college costs a key concern of young parent's today.)
“For most American families, the home is the largest single asset, and for many households it is their only substantial asset,” write the study authors Michael F. Lovenheim and C. Lockwood Reynolds. “Thus, for the lower and middle class, housing wealth is an extremely important component of total resources.”
The findings have particular significance given the anemic job and housing markets, say the researchers, who point to studies that suggest students attending higher quality universities are more likely to graduate and have higher earning potential. “To the extent that these changes in attendance decisions translate into declines in graduation and labor market outcomes, the housing bust may have long-run effects on the supply of high-skilled labor and on income inequality,” according to Lovenheim and Reynolds.
Housing prices have fallen an average of 35 percent since their peak in 2006, with even more dramatic declines in certain metro areas, say the researchers. Substantial losses in home values have been reported by investors from a range of wealth levels who participated in a Millionaire Corner survey in March. More than 53 percent of individuals with less than $100,000 to invest described they home values as “substantially lower” or “lower” than five years ago.”