Paying a few hundred dollars every month on a student loan equates to thousands of dollars over several years that could otherwise go towards saving for a home purchase.
WASHINGTON – June 15, 2016 – Seventy-one percent of non-homeowners repaying their student loans on time believe their debt is stymieing their ability to purchase a home – and slightly over half say they expect that delay to be longer than five years, according to a joint survey released by the National Association of Realtors®(NAR) and SALT, a consumer literacy program provided by nonprofit American Student Assistance.
The results also found that student debt caused four in 10 borrowers to delay moving out of a family member's household after college graduation.
"Realtors® work closely with our clients and consumers everyday; we understand the severity of the problem. This is not an abstract issue for us," says NAR Vice President Sherri Meadows, a Realtor from Ocala, Fla. and 2014 president of Florida Realtors. "This is why Realtors are leading the real estate industry in the discussion of student loan debt and its impact on housing by generating the most encompassing research on this topic.
The full report is available on NAR's website.
Broken down by generation and debt amount, the problem is greatest among older millennials aged 26 to 35 (79 percent) and those with $70,000 to $100,000 in total debt. Regardless of the outright amount of student debt, more than half of non-homeowners in each generation report that it's postponing their ability to buy.
The survey only polled student debt holders current in their repayment. Those polled had varying amounts of debt, and most came from attendance at a four-year public or private college. Overall, 43 percent had between $10,001 and $40,000 in student debt, while 38 percent had $50,000 or more. The most common debt amount was $20,000 to $30,000.
The survey brings to light the magnitude student debt has on the housing market – even those people who are financially able to make on-time payments, says NAR Chief Economist Lawrence Yun. While a college degree increases the likelihood of stable employment and income, many graduating with this debt are putting homeownership on the backburner in part because of the multiple years it takes to pay off their student loans at an interest rate that's oftentimes nearly double current mortgage rates.
"Along with rent, a car payment and other large monthly expenses that can squeeze a household's budget, paying a few hundred dollars every month on a student loan equates to thousands of dollars over several years that could otherwise go towards saving for a home purchase, says Yun.
Among non-homeowners who believe student debt is delaying their ability to buy – over three-quarters overall and 80 percent of millennials – most said the problem is saving enough for a downpayment. But 69 percent don't feel financially secure enough to buy, and 63 percent can't qualify for a mortgage because of high debt-to-income ratios.
Of those who say student debt has delayed homeownership, 52 percent believe the delay will be longer than five years. Those with higher amounts of student loan debt and those with lower incomes anticipate the longest delay.
Student debt and leaving the nest
Mirroring other recent data on young Americans being more likely to live with their parents than in any other living situations, almost half (46 percent) of young millennials polled currently live with family, and 42 percent say that living arrangement is due to student debt.
Older millennials who graduated college during the Great Recession when jobs were scare reported the longest stays with their parents. Of those who graduated six to 10 years ago, 33 percent said it took more than two years to move out of a family home.
"Add in the detrimental effects of low inventory, as well as rents and home price growth outpacing wages, and it's mainly why the share of first-time buyers remains at its lowest point in nearly three decades," says Yun.
Student debt holding back some would-be sellers
The survey also found that student debt is affecting overall housing supply by holding back some current homeowners who otherwise would like to sell. Nearly a third of current homeowners (31 percent) said their student debt is postponing them from selling their home and purchasing a new one.
Of those, 18 percent believe it's too expensive to move and upgrade to a new home, 7 percent have problems with their credit caused by student loan debt, and 6 percent are underwater because student debt limited their ability to pay more than the minimum payment on their mortgage.
© 2016 Florida Realtors® All rights reserved. Reprinted with permission.