• Clear All

The New York Fed and Mortgage Industry Wake Up to Student Loan Impact on Housing

As I have been touting on this blog for two years sometime it takes longer to acknowledge the elephant in the room.

In April 2013, the New York Fed finally reported found that student loans were preventing many recent graduates from buying their first home. More recently, another study that reaches a similar conclusion, and it doesn’t come from the federal government, but from the home loan industry itself.

MainSt.com reported that an analysis by the Mortgage Bankers Association found that loan applications for home purchases have slipped nearly 20% in the last four months of 2013 compared with the same period a year earlier. This is clearly evidence of a trend.

“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.” relayed David Stevens, chief executive of the Mortgage Bankers Association to the Washington Post last week.

If the next generation of home buyers can’t get a mortgage, that’s a big problem for mortgage bankers, let alone realtors. The New York Fed also reported that student loan debt in the fourth quarter of 2013 rose more than 5% above the previous quarter, and now totals almost $1.08 trillion — well above $683 billion in credit card debt.

The student debt burden coupled with relatively low salaries and credit scores will affect the ability of young people to qualify for a home loan, says Stevens. “Overall debt is falling but student loan debt is increasing year-over-year and at a much faster rate,” he says.

“They’re already on the margin for being able to qualify for a mortgage,” he continues. “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% to 45% of the mortgage market,” Stevens adds. “Today they’re close to 35% and we think that’s directly correlated to student loan debt.”

Of the 20% of first-time buyers who said it was difficult to save for a down payment, 54% said student loans made it tough to save money, according to a survey completed by the National Association of Realtors in 2013. About half of the people polled in another of the group’s surveys said that student debt was a “huge” obstacle to buying a home.

Stay tuned – it’s going to be a bumpy ride for years to come…