Student Debt Hinders Homebuying

Marilyn Much |

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As the share of first-time homebuyers continues to plummet, one of the obstacles many consumers face as they consider moving off the sidelines into the market is mounting student loan debt. Overall, the share of first-time homebuyers declined to 32% in the 12 months ending in June, the lowest share since 1987, according to the National Association of Realtors. Historically, the long-term average shows that nearly 40% of primary purchases are from first-time homebuyers. Twenty-five percent of first-time buyers said saving for a down payment was the “most difficult task” in buying a home. Of those, 58% said student loans delayed saving for a home or a down payment. The survey found that the median student loan debt for all buyers is $25,000. The first-time homebuyers surveyed indicated that student loan debt held them back in the timing of their purchase by three years. If there had been no student debt, he adds, they likely would have purchased the home three years earlier. Outstanding student loan balances have increased substantially. Between 2004 and 2014, aggregate outstanding student loan debt has more than tripled in real value. This has happened as households have gotten rid of other kinds of consumer debt, such as credit card debt, while student loan debt has risen steadily. Student loans (are) the biggest source of non-housing related consumer loan debt held by Americans. In a November research paper, Lew noted that following the Great Recession, the share of young renter households, age 20 to 39, with high student loan burdens — or those allocating more than 14% of their monthly income toward student loan payments — nearly quadrupled from 5% in 2007 to 19% in 2013. Student loan debt may also delay the accumulation of savings for a down payment on a home, as cash savings and assets are generally lower among young renters with student loans compared to those without them. The student loan debt problem is getting worse because home prices continue to rise, making homes less affordable.