Research reveals how student debt is affecting the US housing market

Research reveals how student debt is affecting the US housing market New research suggests that the vast majority of would be first time buyers in the United States believe they can’t afford to buy because of student debt.

Some 71% of non-homeowners repaying their student loans on time believe their debt is stymieing their ability to purchase a home, and slightly over half of all borrowers say they expect to be delayed from buying by more than five years.

The survey from the National Association of Realtors (NAR) and SALT, a consumer literacy programme provided by American Student Assistant, also revealed that student debt postponed four in 10 borrowers from moving out of a family member’s household after graduating college.

Nearly three-quarters of non-homeowners polled in the survey believe their student loan debt is delaying them from buying a home. Broken down by each generation and debt amount, the percent share is the highest among older millennials approximately aged 26 to 35 at 79% and those with $70,000 to $100,000 in total debt. Regardless of the outright amount of student debt, more than half of non-homeowners in each generation report that it’s postponing their ability to buy.

The survey, which only polled student debt holders current in their repayment, yielded responses from borrowers with varying amounts of debt from mostly a four year public or private college.

Some 43% of those polled had between $10,001 and $40,000 in student debt, while 38% had $50,000 or more. The most common debt amount was $20,000 to $30,000.

Lawrence Yun, NAR chief economist, said that the survey findings bring to light the magnitude student debt is having on the housing market and the budget of even those financially able to make on-time payments.

He pointed out that while obtaining a college degree increases the likelihood of stable employment and earning enough to buy a home, many graduating with this debt are putting home ownership on the backburner in part because of the multiple years it takes to pay off their student loans at an interest rate that’s oftentimes nearly double current mortgage rates.

‘A majority of non-home owners in the survey earning over $50,000 a year, which is above the median US qualifying income needed to buy a single family home, reported that student debt is hurting their ability to save for a down payment,’ he said.

‘Along with rent, a car payment and other large monthly expenses that can squeeze a household’s budget, paying a few hundred dollars every month on a student loan equates to thousands of dollars over several years that could otherwise go towards saving for a home purchase,’ he added.

Among non-homeowners who believe student debt is delaying their ability to buy, over three quarters, including over 80% of millennials, said their delay is because they can’t save for a down payment. Additionally, 69% don’t feel financially secure enough to buy, and 63% can’t qualify for a mortgage because of high debt to income ratios.

Some 52% of those polled expect to be delayed by more than five years from purchasing a home because of repaying their student debt. One in five anticipates being held back three to five years as well as over 60% of baby boomers. Those with higher amounts of student loan debt and those with lower incomes expect to be delayed the longest.

‘We work closely with our clients and consumers everyday so we understand the severity of the problem. This is not an abstract issue for us,’ said NAR vice president Sherri Meadows.

Highlighting the difficulty many college graduates faced finding employment either before or immediately after the recent recession, those who graduated six to 10 years ago had the longest delay, with 33% saying it took more than two years to move out of a family home.

‘Nearly three-quarters of older millennials, many of whom graduated at the peak or immediately after the downturn, said their ability to purchase a home is affected by student debt,’ Yun pointed out.

‘Add in the detrimental effects of low inventory as well as rents and home price growth outpacing wages and it’s mainly why the share of first time buyers remains at its lowest point in nearly three decades,’ he added.

The survey also found that student debt is affecting overall housing supply by holding back some current home owners who otherwise would like to sell. Some 31% of current home owners said their student debt is postponing them from selling their home and purchasing a new one.

Of those, 18% believe it is too expensive to move and upgrade to a new home, 7% have problems with their credit caused by student loan debt, and 6% are underwater because student debt has limited their ability to pay more than the minimum payment on their mortgage.

‘It is imperative to the nation’s economy that we find immediate and practical solutions to financially empower the 43 million Americans with student debt,’ said SALT president John Zurick.

‘SALT is committed to demystifying the college financing process by giving consumers information, instruction and individualized advice. No one should fail to realise the full potential of their formal education simply because of finances. We invite the higher education community, the US government, the private sector and others to join with us in this movement,’ he added.


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Research reveals how student debt is affecting the US housing market

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Research reveals how student debt is affecting the US housing market
BDC July 2022 issue - 294

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