How the Student Loan Burden Affects Millennial Home-Buying Trends

How the Student Loan Burden Affects Millennial Home-Buying Trends

4 min read
Scott Smith

Scott Royal Smith is an asset protection attorney and long-time real estate investor. His law firm, Royal Legal Solutions, helps thousands of real estate investors and entrepreneurs in all 50 states protect more than $1.2 billion in assets. Since 2014, he has published over 1,000 posts and articles on BiggerPockets and has appeared on hundreds of podcasts.

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Scott fell in love with real estate when his commercial property investment allowed him to graduate from Albany Law School debt-free. He immediately began practicing at the trial and appellate court with the district attorney, placing him in the top 1 percent of lawsuit attorneys in the county in terms of professional experiences. He also worked in private practice, suing insurance companies for denying valid claims (which is surprisingly common!).

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Over 40 percent of millennials “made a mistake” thinking that their starting wages out of college would be able to cover their student loan payments. Yikes.

We hear a lot of talk from presidential candidates and economists about the doom and gloom of student loan debt. Unfortunately, statistics show that student loan debt is pretty gloomy.

Student loan debt has an enormous influence on how people make home-buying decisions. You simply can’t begin to understand where the market is going until you understand the burden of student loans. The average outstanding balance of $37,172 is holding a lot of people back from the biggest milestones in their life.

But despite the longer wait, millennials are increasingly entering the housing market. There is a light at the end of the tunnel, but the tunnel has some high interest rates and growing expectations.

Statistics About Millennial Student Debt

In the past decade, student loan debt has doubled. Americans are trying to pay off $1.5 trillion, and that number could reach $2 trillion in the next six years.

Recent studies show that 61 percent of millennials have delayed or are currently putting off buying a new home due to student loan debt and other factors. Increasing numbers of millennials are also holding off on getting married, moving to a new city, or starting a family.

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Instead of saving up for a down payment, they’re sending away close to $400 each month to pay down their loans.

Instead of buying, millennials are renting with roommates. Or they’re moving back home. Close to one in four millennials are living with Mom and Dad.

While some have taken on the role of caregiver, others are just trying to save money. It makes sense—2018 graduates left school with an average debt of almost $30,000. And with an average income that’s less than $37,000, it looks like parents’ nests won’t be empty for at least a few years.

Related: Should I Pay Off My Student Loan or Invest in Real Estate?

Can Student Loans Prevent You From Buying a House?

These statistics look pretty grim. Just hearing about the impact of the student debt crisis is enough for many millennials to click out of Zillow and give up hope. But student loans don’t necessarily bar millennials from buying a house.

When mortgage lenders look at a potential buyer’s application, they aren’t just looking at how much they owe. They’re comparing the buyer’s recurring debt to their monthly income.

Student loan debt is just one piece of the puzzle. Car loan payments and credit card debt are also considered when calculating the buyer’s DTI. Lenders want to see a DTI below 36 percent.

Home ownership dropped 20 percent between 2005 and 2014, partially due to the student debt crisis. But things have begun to pick up in the past few years.

As millennials continue to save and manage their debt, they can and will (eventually) start to enter the housing market.

Millennial Home-Buying Trends

Millennials haven’t completely shut down the idea of buying a home. Things are starting to pick up. The number of millennials buying home is beginning to increase year by year.

In 2017, millennials made up 34 percent of the people buying homes. The rest of the generation is hopeful. After all, many millennials aspire to buy a house as a way of putting a cherry on top of the American Dream sundae.

But many just can’t do it right now.

The average baby boomer was 25 years old when they bought their first home. Millennials are waiting much longer—as in an additional five to 10 years.

The combination of the long wait, student loan debt, and changing digital world have influenced the ways that millennials buy (and expect to buy) homes. Hop on these trends now to hand millennials exactly what they are looking for (with a side of avocado toast to celebrate).

Related: 10 Seemingly Harmless Habits That Sabotage Ambitious Millennials

Buying Fixer-Uppers

Who doesn’t want to play Chip and Joanna? Fixer-uppers aren’t just the subject of hit HGTV shows. They’re more affordable, and that makes them more appealing to buyers.

Research from LendingTree shows that 88 percent of buyers who have student loan debt are considering fixer-uppers. Fortunately, of the buyers that do choose the fixer-upper route, millennials are the most likely to actually make improvements on the home.

young woman sanding planks of wood with an orbital sander in an unfinished room during DIY renovations

Long List of Must-Haves

The long wait has swayed many millennials in the opposite direction. They want their first home to be their dream home. For many millennials, this means arriving to each listing with a checklist.

Here are some of their top priorities:

  • Open floor plan
  • Space for a home office
  • Updated bathroom and kitchen
  • Able to get high-speed internet and great cell reception
  • Compatible with home technology

If millennials can see these features in a listing up front, they’ll be more willing to take a look around.

Digital Open Houses

Technology influences the entire home-buying process for millennials. They conduct a majority of their first steps behind a screen. In fact, 98 percent of homebuyers under the age of 38 are online “frequently” or “occasionally” to look for homes. Of these buyers, 80 percent found their home on a mobile app.

These numbers shouldn’t just influence where Realtors and sellers put their homes. If you are hoping to sell in the next few years, prioritize real estate photography. High-quality photos, 3D tours, and even the use of drones can significantly boost the amount of homebuyers who are interested in your home and willing to make an offer.

Keep an eye on these trends and how new political leaders handle the student loan crisis. More financial freedom for millennials could speed up the rate in which they buy their first home.

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Have you observed an other millennial home-buying trends? Are you a millennial? Have you purchased property? Are student loans playing a role in your ability or inability to do so?

Comment below!