Quantifying Student Debt In The Housing Market

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Student debt is taking a bite out of home sales. Peoples Home Equity shares and comments on a recent report by John Burns Real Estate Consulting.

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American colleges and universities are draining the funds out of its own youth before it can reach the housing market.

Peoples Home Equity, a Midwest based lender, has long known that first-time home buyer activity is at the mercy of student loan debt and jobs. While the labor market has improved, showing just a relatively low 5.9%, student debt remains a large issue. Thus, Peoples Home Equity was intrigued by a recent release that attempts to quantity how much the housing industry is suffered due to high student debt.

The release is titled “Student Loans Will Cost The Industry $83 Billion This Year” and was distributed by John Burns Real Estate Consulting, LLC on September 19th. This $83 billion figure translates into 414,000 home sales lost out of the forecasted 5.26 million new and existing housing transactions for 2014.

The consulting group highlighted in their 30-page report that “5.9 million households under the age of 40 pay over $250 in student loans per month compared to just 2.2 million back in 2005.” A $250/month student loan payment translates into “at least $44,000 per year in mortgage capability” per household. Thus, only “About 8% of the 20–39 age cohort usually buys a home each year, which would be 1.35 million transactions per year.” Reading this certainly emphasizes how much the student debt market is growing exponentially for the worse. Student debt has “ballooned from $241 billion to $1.1 trillion in just 11 years.”

Some officers at Peoples Home Equity view this current student debt situation as a tragedy of profit motive. American colleges and universities are draining the funds out of its own youth before it can reach the housing market. This effects lenders, home builders, architects, carpenters, etc… It’s hard not to blame disappointing weekly home sales and mortgage application data on the immense size of student loan debt in a year when Peoples Home Equity was hoping to see summer sales outperform those of 2013. The reality is home sales would have been stronger this summer had more mortgage applicants been approved by showing less debt on their submissions.

Peoples Home Equity loan officers understand the worries that some prospective borrowers have in taking on the responsibility of another large debt obligation. However, obtaining a home loan can actually be cost saving! Monthly payments for a mortgage are often less costly than paying for rent! If interested in applying for a home loan considering speaking to a Peoples Home Equity loan officer today at: 262-563-4026.

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Giorgio U Ferrero
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