Student Loan Debt Curbing Housing Market

Sep 25, 2014 - 2 Min read
Octavio Nuiry
Real Estate Expert

The residential real estate market’s foundation is beginning to wobble. And crushing student debt is curbing the nascent real  estate recovery, according to a new report by John Burn Real Estate Consulting.

The report estimated that 414,000 transactions will be lost in 2014 due to student debt, costing the market $83 billion in lost sales. Crushing student loan debt is preventing nearly half a million first-time buyers under 40 from entering the housing market, according to Rick Palacios, director of research at Irvine-based John Burns Consulting.

Palacios and his team found that for every $250 per month in student loan debt owed it decreases its home buying power by  $44,000. The report said student loan debt could reduce home sales by 8 percent this year.

Collectively, student loan debt is colossal. With the cost of a college education skyrocketing the last few years, student  loan debt has ballooned to $1.1 trillion, according to the Federal Reserve Bank of New York. “Balances of student loans have eclipsed both  auto loans and credit cards, making student loan debt the largest form of  consumer debt outside of mortgages,” said the Federal Reserve.

Between 2004 and 2012, student loan debt in the United States nearly tripled from $364 billion in 2004 to $966 billion in 2012, according to the 2014 Federal Reserve report. Two-thirds of the debt was owed by borrowers under 40, with one-third of the total owed by borrowers under 30.

Additionally, the Fed found that between 2004 and 2012, the number of student borrowers increased 70 percent, growing from 23  million to 39 million. And during the same period, the average debt balance per  borrower increased by 70 percent, from $15,000 to $25,000.

Earlier this month, RealtyTrac issued a report that found student loan debt was a hindrance to affordability. “Student loans  still represent a significant handicap for recent graduates in terms of the minimum income needed to buy a median priced home,” said Daren Blomquist, vice president at RealtyTrac.

Still, the RealtyTrac report found that student debt alone is a make-or-break factor in affordability in only seven counties  nationwide: San Diego County, Calif., and Westchester, N.Y., and five other California counties: Sonoma, Monterey, San Luis Obispo, Yolo and Napa.

Meanwhile, with cash buyers and investors fleeing the residential real estate, the news that young adults and first-time buyers are being hurt by student loan debt is not good news for the residential housing market.

And there are other factors at work here too: fewer jobs, lower paying jobs, rising home prices, tight credit and poor credit  scores. Moreover, many young adults are doubling-up and living with their parents or grandparents.

What are your thoughts? Is rising student loan debt an issue for residential real estate sales?

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