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Increasing Student Loan Debt Hinders Housing Market

Sep 22, 2014
People under age 40 with high student loan debt have limited capability to secure the mortgage loans they need to purchase a home.

Increasing student loan debt in the U.S. is having a negative impact on home sales, The Wall Street Journal reports.

According to the article, based on a study by John Burns Real Estate Consulting, home sales will decline by approximately 8 percent in 2014 due to consumers' student debt.

The consulting firm's analysis of households with people under the age of 40 shows that $83 billion, or 414,000 transactions, will be "lost" this year due to increasing student debt.

Overall U.S. student loan debt is $1.2 trillion. ACA International members work to collect student loan debt and, according to the Impact of Third-Party Debt Collection on National and State Economies survey by ACA and Ernst & Young, student loan debt was 25.2 percent of total debt collected in 2013.

According to the study, 29 million of the 86 million people ages 20-39 have some student loan debt. That equals 16.8 million households, of which 5.9 million (35 percent) have more than $250 in monthly student loan payments, and therefore are missing at least $44,000 per year in mortgage capability.

Approximately 8 percent of people ages 20 to 39 usually buy a home each year, which would equal 1.35 million transactions, according to the study.

The Wall Street Journal also reports that first-time home buyers (with an income of $61,000) could receive approximately $234,000 for a home loan if they did not have any student debt.

"Mortgage lenders generally won't extend credit to borrowers whose total debt payments exceed 43 percent of their gross incomes," the article noted.

As monthly student loan payments reach $750 or more, borrowers could only qualify for a $103,280 mortgage.

However, many borrowers with monthly student loan payments of less than $100 or between $100 and $250 will not buy homes in 2014, according to the article.

© 2014 ACA International

Created on 28-Oct, 2014 by HKCCMA.

Last Edited on 28-Oct, 2014 by HKCCMA.