Student Loan Debt Could Hobble Housing
It seems like there’s been nothing but blue skies for the housing market since 2013 turned the bend. The rate of home purchase has been gradually rising, and with that has followed an accompanying jump in home values. In fact, the recovery has become so pronounced that Ben Bernanke recently spoke in its favor, making statements earlier this month validating the housing recovery. However, in surveying the greater U.S. economy, there seems to be some fiscal fine print.
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According to recent analysis from CNBC.com, one of the greatest antagonists of the current housing recovery is America’s behemoth student debt. As the report notes, student debt’s relationship to real estate health is more abstract than, say, the rate of new homes starts. However, as a generational quandary, it’s enormous. It’s become clear that the current generation of young professionals and educated 20-somethings are actively deferring home purchase. Taking out loans for a mortgage, as their parents before them often had by their late 20s, is a pipe dream considering the unprecedented volume of debt they’re currently juggling.
Without pointing fingers at any one culprit as to its cause, the student debt crisis’ impact on the housing market should be a source for concern. Considering that Americans seem more optimistic about the housing than they have in years, it’s crucial to examine the impact the debt wace could have on housing. So, in light of the fact that America’s collective student debt is only accumulating, what are the consequences?
As a major repercussion, student debt is sidelining an entire generation of crucial homebuyers. As the CNBC report notes, successive generations of college grads have buoyed the housing market year after year as they transitioned towards buying their first home. Individual student loan debt has become so staggering that many young adults are forced into delinquency, further damaging their credit and chipping away at chances of getting a mortgage. As the CNBC article discloses, the amount of 25 to 30 year olds with student debt who were granted a mortgage last year was less than half those granted a home loan in 2005.
It has reached the point where young buyers constitute the smallest percentage of current homeowners in over a decade. While stops and starts in any recovery are to be expected, current trends point to student debt having an outright stagnating effect on the housing market. We’re looking at less of a generational time bomb, it seems, and more of a generational halt. Growth in the housing market could dwindle, or the housing market could even enter a second trough, if heavy accumulation of student debt continues with future grads.
There seem no simple solutions for the student debt problem. The ideal corrective at this point would be for the economy as a whole to recover, so today’s young adults have room to develop skills and earn wages that would make sloughing off their overpowering debt easier. More so than with any other segment of the American economy, the job market looks to be the key to stoking an ongoing recovery- even in seemingly unrelated sectors.