We have been saying that one of the great risks to the housing recovery is the huge increase in student debt over the past decade. If the universities get the youth to finance their education they will not be in a position to buy, and borrow, for a home. It is not rocket science…
Now the New York Federal Reserve is chiming in and showing that this is starting to happen.
Total student debt stands at $966 billion as of the fourth quarter of 2012, the N.Y. Fed said in press materials, with a 70% increase in both the number of borrowers and the average balance per person. The overall number of borrowers past due on student loan payments has grown from under 10% in 2004 to 17% in 2012.
Fewer people with student loans are buying homes, according to data in the report. Of borrowers ages 25 to 30 who are taking out new mortgages, the percentage of those with student debt has fallen by half, from nearly 9% in 2005 to just above 4% in 2012.
“The higher burden of student loans and higher delinquencies may affect borrowers’ access to other types of credit and the performance of other debt,” the fed report concluded.
Educational debt is now the largest consumer liability after mortgages. via JSOnline
If 85% of the renters making between $50,000 and $75,000 are paying student loans, and we as a nation are seeing tight credit standards for mortgage debt, the housing market is going to be facing a tough road converting these folks into first time home buyers.
And we all know, first time home buyers are the life blood of the real estate market…
I teach home buyer education in a town filled with the overeducated and underemployed — Ithaca, NY. Many of my students have more student loan debt than they're likely to get in a mortgage.
The other issue is that they don't understand how their student loans affect their home buying prospects. Many of them consolidate their loans because it makes financial sense. But they'd qualify for more of a mortgage if they'd pay off some of their small student loans instead of bulking them together.
Yes, student loans will have a huge impact on our economy, not just in real estate.
As a Realtor who works with many first time home buyers, I’ve seen firsthand potential clients turn into renters after their pre-approval shows too high of a debt to income ratio due to college loans. The solution is going to be multifaceted and will take time, so we need to work on this issue now to avoid effects on the housing market.
Some people miss out on property because they want too much too soon. With qualifications should come decent wages and the opportunity to upgrade sometime in the future.