Tags: housing | student debt | loan

Wondering About the Weak Housing Market? Look At Education

By    |   Thursday, 25 September 2014 03:16 PM

Education, or at least the cost of it, is one cause for weakness in the housing market experts say.

Americans have amassed more than $1 trillion dollars in student loan debt, according to the Federal Reserve Bank of New York, meaning the average graduate younger than 30 owes $21,000 for his or her education, according to CNNMoney.

This rise in student loan debt has two negative effects on the housing market: it requires buyers to purchase cheaper homes and in many cases, requires people to defer home purchases until later in life, according to a report by Rick Palacios, director of research for John Burns Real Estate Consulting, The Wall Street Journal reports.

A typical first-time buyer with an income of $61,000 can qualify for a $234,080 mortgage without any student debt, but that figure falls as the monthly debt burden rises.

Every $250 a month owed in student loan debt translates to a $44,000 reduction in purchasing power for a home, Palacios' research shows.

And with nearly 6 million households paying more than $250 a month on student loans, Palacios projects that student loan debt is responsible for an 8 percent decline in home purchases among Americans younger than 40.

That represents $83 billion worth of real estate transactions.

Given that a number of complex factors impact the housing market, Mark Zandi, chief economist for Moody's Analytics, isn't confident about the ability to calculate a specific toll for student loan debt. However, he agrees that the trillion-dollar debt load has had some effect, CNNMoney adds.

The percentage of homes sold to first-time homebuyers has fallen from a long running average of 40 percent to 29 percent.

Even the Federal Reserve has noted that the once-positive connection between student loan debt and homeownership has turned negative.

"Simply put, [pre-recession] these more educated, often higher-earning, consumers were more likely to buy homes by the age of 30," the central bank noted in an assessment released in May.

"However, the recession brought a sudden reversal in this relationship. As house prices fell, homeownership rates declined for all types of borrowers, and declined most for those 30-year-olds with histories of student loan debt."

And despite improvements in the economy and the housing market, student loan holders have not regained their homeownership advantage, the Fed added.

One cause for the changing relationship between higher education and homeownership is the massive loss of household wealth during the Great Recession, notes The Huffington Post.

Approximately $6 trillion in real estate value evaporated. Before the downturn much of that wealth would have been used to finance the costs of a college education by way of home equity lines of credit. But that once viable financing option is now severely limited, says the Post.

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Education, or at least the cost of it, is one cause for weakness in the housing market experts say.
housing, student debt, loan
Thursday, 25 September 2014 03:16 PM
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