Housing market recovery hamstrung by buyers’ crippling student loan debt
High school seniors — and the parents encouraging them to attend college on borrowed money — may find the American dream of owning a home out of their reach after the bill for their student loans comes due.
According to the Mortgage Bankers Association, loan applications for new homes fell a staggering 20 percent in the past four months. Meanwhile, student loan debt in the fourth quarter of 2013 rose five percent above the last quarter — outpacing mortgage debt, which rose only two percent in the same quarter.
“Overall debt is falling but student loan debt is increasing year-over-year and at a much faster rate,” chief executive David Stevens told The Washington Post. “[Young graduates] are already on the margin for being able to qualify for a mortgage. If you add on a large student loan debt payment of $400, $500 or $600 [a month], that’s going to impact your qualifying ability to buy a home. … First time home buyers are usually 40 percent to 45 percent of the mortgage market. Today they’re close to 35 percent and we think that’s directly correlated to student loan debt.”
Student loan debt is also non-dischargable — the federal government dispatches an army of 32 agencies to squeeze graduates for loan payments. In one remarkable case, a woman recovering from Stage 4 pancreatic cancer, an affliction for which the survival rate for patients quickly drops to zero, was told by federal agents that as long as she was still breathing, she had to pay her loans — until the Ninth Circuit Court intervened and discharged most of her debt. (RELATED: Federal loan sharks prey on cancer patients filing for bankruptcy)
“Student debt trumps all other consumer debt. It’s going to have an extraordinary dampening effect on young peoples’ ability to borrow for a home, and that’s going to impact the housing market and the economy at large,” Stevens said.
Student loan debt stands at a total of $1.08 trillion dollars, and tuition grows at an annual rate of 7.4 percent, outstripping both rising health-care costs and inflation. A college degree’s cost has grown 439 percent since 1983.
Over 37 million Americans are shackled with permanent debt, with 40 percent of households headed by Americans under 35 making the minimum monthly payments under interest rates ranging anywhere from 3.4 to eight percent.
This includes many mortgage brokers and realtors who rely on a steady influx of new customers to help pay down their own student loan debt. While home prices and mortgage interest rates are low for the time being, rising rates would likely push more young graduates out of the housing market altogether.