Are Student Loans Killing the Housing Market?

Generation Y — those born between the mid 1980’s and late 1990’s — already have a lot on their plate between dealing with crushing student loan debt, a shaky job market, taking the perfect “selfie,” and growing up during a time in which reality TV has replaced MTV.

Now they’re being blamed for killing the real estate market’s “vibe.” According to a study published by home builder adviser John Burns Consulting, student loan debt payments will cost the housing industry an estimated 414,000 transactions this year, totaling nearly $83 billion in sales. Ouch.

It has long been speculated that crushing student loan debt is slowly eating away at an otherwise booming housing market. John Burns Consulting’s study takes a stab at exactly how much of an impact student loan debt is having on an otherwise steadily recovering market.

How was the figure of $83 billion reached? Start with 5.9 million households under the age of 40 who are paying a minimum of $250 in student loan debt each month, which is nearly triple the 2.2 million college graduates that were in the same predicament in 2005. From there, assume that the average $250 monthly payment reduces the buying power of potential home owners by $44,000.

If you think that’s bad, a $250 monthly payment is only average. Many graduates are paying significantly higher amounts, upwards of $1,000. The higher the student loan payment, the less they can commit to a mortgage. The study went on to speculate that graduates paying more than $750 have completely priced themselves out of the housing market.

The study only looked at graduates between the ripe old ages of 20 through 40. While that may seem like a pretty sizable lot — especially given the fact that 35% of all households within that age bracket have monthly student loan payments of at least $250 — there are a large number of households over the age of 40 who are also carrying significant amounts of student loan debt. By that time, the payments are not likely to be as high. However, piggy banks may still be empty.

“It is true student loans have come into a big play in qualifying for a home mortgage. Whereas the 20 to 40 age is a huge market for home buying, the over 60 and retirement age has significantly increased in home sales,” says Priscilla Allen, REALTOR® at Allen Realty Group with RE/MAX Associates. “Although many are having to purchase a lower price range homes or rent, because of having outstanding student loans, the ‘baby boomers’ seem to be taking up that slack. In my area, San Antonio, Texas, the Y generation does not seem to be a significant issue in loss of home sales.”

The report comes at time when the housing market is finally showing promising signs of recovery and even growth. Recently released new home sales data shows the industry’s highest monthly growth rate in over six years. Not so fast, though. The near-term outlook is beginning to look a little cloudy.

The good news? The student loan debt crisis has sparked debate regarding the astronomical costs and even necessity of obtaining a college education. It’s also important to keep in mind that on average, college graduates are earning more than those who did not attend college. The higher the level of education, the higher the income.

The housing industry — and the economy as a whole — might be better off if attending college was more affordable. However, riddled with debt or not, college graduates still have major influence and purchasing power.


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