Dive Brief:
- Rising student debt — which results in a lack of available funds to put toward a down payment — is a primary factor in reduced homeownership among young people ages 25-34, according to Irene Lew, research assistant at the Harvard Joint Center for Housing Studies. In addition, delinquency and default on those loans means debtors have trouble qualifying for low interest rates or a mortgage.
- According to the Institute for College Access and Success’s 10th annual report, average student debt at graduation rose 56% in 2014 to $28,950, up from $18,550 in 2004.
- Student debt, Lew said, was the only type of consumer debt to rise steadily during the Great Recession. In addition, between 2007 and 2013, the share of young renters with high student debt rose almost four-fold, from 5% to 19%.
Dive Insight:
A recent National Association of Realtors survey echoed these results, as it found first-time buyer share had dropped to a 28-year low of approximately one-third of total homebuyers.
Lew's study found that among first-time buyers who reported difficulty in saving enough for a down payment, student loans were a factor among for 57%. The report also noted that young renters with lower income are more likely to suffer under the burden of student debt, particularly when factoring in other non-housing debt payment.
The Federal Reserve Board’s triennial Survey of Consumer Finances, Lew reported, found college-educated renters in their 20s and 30s, with student loan debt, had a median of $3,500 in cash savings and net wealth of -$9,640, compared to those without student debt, who had $7,500 in savings and $27,000 in net wealth.
The lack of first-time buyers is exacerbating concerns that younger potential buyers are being left out of the housing recovery. Many housing experts predicted 2015 would see strong first-time buyer activity as a natural result of low mortgage rates, job and income growth, but that hasn't been the case.
These recent studies signal that homebuilders can likely expect the student debt "crisis" to continue to prevent most young buyers from saving for down payments, qualifying for mortgages and making home loan payments for several years.
