Student debts weigh down on the housing market

Student loan debts in the country have been a menace to most first time home buyers in the United States, who have to deal with the intricacies in the mortgage lending environment and the heavy debts flaunting on their portfolio, all of which seem to damper their American Dream of Homeownership. With the recent Independence Day celebration, you have to wonder when the country will ever achieve the true meaning of independence.

The fact is, student loan debts weigh more heavily on the students of color more than their white counterparts. According to a study by National Center for Education Statistics (NCES), an estimated 86.8% of the Black Students borrow from the federal student loan to attend a four-year public college as opposed to the 59.9% of the white students. With the rising cost of tuition which as a matter of fact out paces inflation and wage growth in the country, many of the students are struggling to make it education wise. You will realize that about 44 million Americans owe over 1.48 trillion in student loan debt. Digging deeper into the student debts crisis, evidently, black and Hispanic students pay more when it comes to student loans, what does this mean for the American Homeownership dream?

Over the recent past, student loans are increasingly becoming an insurmountable burden which reduces home buying opportunities at a time when the American home market needs an input of the first time home buyers, to sustain the ongoing recovery. Not that most people cannot qualify for the mortgage needed to purchase a home but the student loans are doing significant damages to the homeownership.

Student loans are generally incompatible with the mortgage financing as these loans (and any other kind of loan) affects the Homebuyer’s Debt-to-Income ratio (DTI). Data from College Board reveals that, more than 70% of the college graduates have taken out the students loans. Therefore, this means that most of the college educated clients have to weigh their home purchase with the college debts reflecting on their portfolios or their savings if they have already paid of their debts. Evidently, student loans are nowadays everywhere and cutting into the potential homebuyer’s clientele base, very quickly.

There are 2 certain reason why student’s loans are creeping and cutting a slice of the homebuyers market; first, the cost of college education continues to increase quickly and the number of the individual attending college continues to grow. Let’s talk numbers, in 2006-2007, the average tuition fees for a 4 year public college or university was $4,549. Five years down the line, 2011-2012, the figures were almost twice that, at $9,022. From 2000 to 2010, the number of students attending 4-year public college or university in California grew by a shocking 16 percent.

This is bad news for housing market and to be more specific, bad news for the minority groups since they are the largest partakers in the student debt crisis, while the numbers seem alarming in a general sense, the rising tide of the student debt presents a fiddly situation for the housing market. Education is important, there is no doubt about that, to obtain high paying job, higher education is subject out of discussion, the jobs are a big boon for the housing market.

The decrease in the first time homebuyer trends corresponds with the swift rise in the student debts. We are not entirely to blame student loans for the decline in homeownership, you will note that the persistently high unemployment rates in the wake of 2008 recession and reduced savings, make up for the crisis in homeownership. Good news is that, since the decline in the number of student loan borrowers which began in 2013, homeownership rates in 2016-2017 began to make a comeback for the young adults.

The first-time homebuyers are slowly making a comeback into the market, what’s happening is that the loan balances are being paid off and the saving are being accumulated which means, more first time homebuyers will be pouring in. By the end of 2019, the employment picture will have improved enough to support the larger numbers of the first time home buyers. But as they make the comeback in a greater force, their numbers will continue to be undersized by the drag of the student debt.

Sources

https://nces.ed.gov/datalab/index.aspx

https://studentloanhero.com/student-loan-debt-statistics/

https://www.mpamag.com/news/jumbo/unpaid-school-loans-weigh-down-on-housing-recovery-14519.aspx

https://www.bostonglobe.com/lifestyle/real-estate/2016/09/30/student-loan-debt-causes-chain-reaction-housing-market/p6DGy4f2px9vadMJnKr39O/story.html