Industry Denying Affects of Student Loans on Housing Market
There’s a new report from RealtyTrac that’s generating some buzz this week, claiming that student loan debt is not holding back the ability to buy a house in the vast majority of U.S. markets. This kind of contrarian stat tends to generate news, so it’s worth pulling back the curtain on it a bit. Doing so shows that the claims that are inevitably going to come from this – that student debt is a minor nuisance at most – aren’t particularly supported by the report.
What RealtyTrac actually says is that a recent graduate with average levels of debt, employed, making the median household income, could afford to make housing payments up to 43 percent of income, assuming they make a down payment of 20 percent and qualify for a 30-year fixed rate mortgage.
If you look at these assumptions piece-by-piece, it’s hard to see how many student loan borrowers actually fit this mold.
First, did a borrower graduate? Given that less than 60% of college students graduate within 6-years, and around a third of student loan borrowers drop out of school, this removes a lot of young people from our sample. Not to mention, the RealtyTrac report seems to assume the borrower earned a four-year degree, which only accounts for about two-thirds of all degrees.
Second, did that borrower find a job? From EPI, we know that unemployment for recent graduates is 8.5%. Young black college graduates face much higher unemploymentrates. Unemployment among younger workers is always higher than among older workers, but these percentages are still far higher than before the recession.
Third, is the graduate making the median household income? Average starting salary for a recent graduate is slightly over $45,000, less than median household income in literally every state. Underemployment for recent graduates is also rampant, and even RealtyTrac report says that student debtors need to make an average of about $9,000 more a year than graduates without debt in order to afford a home.
Fourth, could this graduate even qualify for a loan? Credit scores for student debtors are lower than those without debt (which is a new phenomenon, as this Brookings papershows). Meanwhile, student loan debt is the only type of debt in which delinquencies have actually risen after the recession, and it’s not getting better. Default rates on student loans are the highest we’ve seen in 20 years. And this doesn’t even touch on whether or not a student borrower has enough cash-flow for a 20 percent down payment.
So the borrower being described by RealtyTrac isn’t exactly a unicorn, but he or she isn’t exactly common either.
Here’s what we do know.
We know that homeownership rates have fallen faster among young people with student loan debt than those without debt. We know that young people have been noticeably absent from the housing market in general. We know, again, that delinquencies and defaults on student loans are up, which is probably contributing to lower credit scores for student debtors…
By Mark Huelsman