The Stark Effects of Student Debt on Home Buying Trends

For many years, I have been doing my best to sound the alarm: our ballooning student loan debt will grind our economy to a halt.

Finally, financial experts are joining me in this freak out. They’re putting two and two together and recognizing that skyrocketing education costs are depressing home buying activity. Within the past decade, the number crunchers have seen tangible proof of this thesis. Here’s how our student debt crisis has affected home ownership.

Fewer Twenty-Somethings Owning Homes

As CNN Money reports, only 21 percent of young adults in their twenties owned a home in 2016—a drop of 11 percent from 2007. The Federal Reserve blames several factors on this trend—including, of course, the housing market collapse in 2007 and the resulting recession. But mushrooming student debt is responsible for at least 35 percent of this decline. That is a very strong factor.

More Young Adults Living with Their Parents

The rental markets also seem to be affected by student debt. A recent report by Pew Research shows a startling trend: For the first time in more than a century (that’s a hundred years, so since 1918!!), young adults between ages 18-34 are more likely to live at home with their parents than in their own homes with a spouse or partner—31.6 percent of them, to be exact.

That trend may not change any time soon. CNBC adds that more than a third of college graduates plan to move back home with their parents for at least a year after college. That’s not a trend; it’s a new normal.

Home Ownership Delayed

The good news is that millennials do eventually buy homes: They now account for 35 percent of the buyer’s market, according to the National Association of Realtors.

But they’ve been waiting longer to buy those homes, presumably until they gain more income or make headway on debt. As the Washington Post reports, student debt now causes young adults to put off home ownership for an average of seven years.

I have no doubt that this trend will continue. More and more people will wait to buy, because it just isn’t as important as it used to be. It is not a priority to own a home; it is a priority to get out of debt. Also, this generation is understandably jilted about home ownership. They saw the 2007 crash and learned from it.

Here’s the bottom line. People want to get out from under student loan debt before taking on a mortgage. And since the average student loan debts are increasing, it will take graduates longer on average to get out of debt. It is hard to get started in life when you come out of school already in the hole.

Student loans are crippling our economy. They’ve siphoned money out of the pockets of well-meaning adults, who just wanted to ensure a better future for themselves and their families. Imagine if these trends continue or get exacerbated. Less home buying means a weaker and weaker economy.

I regularly help my clients use proven strategies to maneuver around the underwriting guidelines of home buying. I train mortgage brokers about the strategies that make sure high student loan debt doesn’t severely affect the Debt to Income Ratio. There is always a way, if you truly want to find it.

If your student debt prevents you from even considering home ownership or other living expenses, you are not alone.

College debt is not a life sentence. College Loan Freedom has some proven strategies that may help. Give us a call to learn more.