Student debt & home sales
By Carl Horst
Last year, student debt surpassed credit card debt for the first time, topping $1 trillion. Here in Ohio, with our more than 200 colleges and universities, graduates carry some of the highest average debt levels in the country.
At this point you may be saying…wait, isn’t this a real estate blog? Why are we bringing this up? Because a variety of news outlets are making the connection between rising student debt and the long-term impact on housing. Says Bloomberg Businessweek:
Totaling close to $1 trillion, America’s mounting pile of outstanding student debt is a growing drag on the housing recovery, keeping first-time homebuyers on the sidelines and limiting the effectiveness of record-low interest rates.
According to a recent Federal Reserve study, only 9 percent of 29- to 34-year-olds got a first-time mortgage from 2009 to 2011, compared with 17 percent 10 years earlier. “First-time homebuyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly,” Federal Reserve Chairman Ben Bernanke said at a homebuilders conference.
Recent college graduates carry an average debt load of more than $25,000, limiting their ability to qualify for mortgages even if they’re able to land a job in a market with an unemployment rate of of 9 percent for 25- to 34-year-olds. Dubbing it a “student loan debt bomb,” the National Association of Consumer Bankruptcy Attorneys warned on Feb. 7 about the effects of rising student debt on recent graduates, parents who co-signed loans and older Americans who’ve gone back to school for job training.
The situation may be even more alarming in Ohio, says the New York Times, which has published a series — Degrees of Debt — examining the implications of the soaring cost of college and the affect on students and families. The newspaper touched on three Ohio schools (both public and private) – Ohio Northern University, The Ohio State University and Bowling Green University – to illustrate the situation and the challenges it presents:
College presidents across the country are confronting the same realization, trying to manage their institutions with fewer state dollars without sacrificing quality or all-important academic rankings. Tuition increases had been a relatively easy fix but now — with the balance of student debt topping $1 trillion and an increasing number of borrowers struggling to pay — some administrators acknowledge that they cannot keep putting the financial onus on students and their families.
With schools receiving fewer and fewer state dollars — for example, Ohio State only receives 7 percent of its budget from state money — the burden is likely to continue shifting to students. According to a Department of Education survey of 2007-2008 graduates, roughly two-thirds of the bachelor degree students borrowed money to attend college (from both the government and private lenders), a jump from the 45 percent of 1992-1993 graduates that similarly borrowed funds.
In terms of real dollars…the debt levels are eye-opening. Says the Times:
- For all borrowers, the average debt in 2011 was $23,300, with 10 percent owing more than $54,000 and 3 percent more than $100,000;
- At Bowling Green, 62 percent of graduates have debt averaging $31,515;
- Ohio State graduates have an average debt load of $24,48;
- And in the case of one Ohio Northern graduate, the tally reached $120,000. Her assessment:
I knew a private school would cost a lot of money. But when I graduate, I’m going to owe like $900 a month.
That’s a lot of real money being taken out of the economy – whether its on purchases for clothes, cars or even a mortgage — for many months and months, and years and years ahead. Says Bloomberg:
People aged 25 to 34 made up 27 percent of all homebuyers in 2011, the lowest share in the past decade and 6 percentage points below their 33 percent share in 2001, according to the National Association of REALTORS. “Students coming out of college are burdened with more debt than traditionally they have been, and they are also coming into an economy that is underperforming previous recoveries,” says Rick Palacios, a senior research analyst at John Burns Real Estate Consulting in Irvine, Calif.
Palacios says first-time buyers are key to a housing recovery because they allow current owners to move into larger, pricier homes. “Move-up buyers need somebody to purchase their homes to move,” he says. “You need that first leg in the recovery to materialize.”