College Debts Prevent Graduates From Buying Houses

The housing market has been dealt a further setback, as it is revealed that student debt is stifling the ability of graduates to get mortgages.

As the country’s total college debt passed the $1 trillion mark and overtook the total credit-card debt for the first time, the repercussions are being felt in the housing market, as first-time homebuyers are limited in their options when it comes to taking out mortgages.

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 9 percent for 25- to 34-year-olds, writes Bob Willis at Bloomberg.

As recent Federal Reserve data shows, over the last ten years the number of 29- to 34-year-olds getting a first-time mortgage had decreased by 8 percent.

Fed Chairman Ben Bernanke said:

“First-time home buyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly.”

John Rao, vice president of the National Association of Consumer Bankruptcy Attorneys, said:

“Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future.”

Rick Palacios, a senior research analyst at John Burns Real Estate Consulting, said:

“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.”

“Move-up buyers need somebody to purchase their homes to move. You need that first leg in the recovery to materialize.”

While people aged 25 to 34 still account for 52 percent of the overall number of first-time home buyers, young adults who are starting to move out of their parents’ houses want to rent, not buy.

And that’s if they can get out of the parental home. Almost 6 million Americans in that group lived with their parents in 2011, up from 4.7 million when the recession began in 2007, according to U.S. Census Bureau data.

Comments

Joe

March 4, 2012 at 3:11 am

So they’ll buy a house later. What is the problem? College debt might be preventing them from buying a house now, but it is also allowing them to earn an income that’ll make them able to buy a house later.

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- Linda Brees
  
  March 4, 2012 at 3:11 am
  
  Middle class? What middle class?
  
  Reply
Dave Person

March 4, 2012 at 8:06 am

Probably the best thing for a young college graduate is to find out what the real world is and the costs associated with the life style. waiting a few years is gone for them. They find out they can’t have everything right away. Saving for a deposit, finding out where you might want to live, etc.
The real problem is the cost of college! Its much too expensive. Colleges/ Universities have been allowed to add cost each year, never shedding any expenses. Why is that. Their priorities are wrong, and thats a whole another topic.

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Mike

March 4, 2012 at 9:28 am

Joe, that doesn’t allow them to save up income to buy a house later. A large chunk of their income will be going to paying off those student loans, with the remainder being used to cover cost of living (rent, food, medical, etc). If it is a “later down the road” thing, it will be MUCH later.
Dave Person, you are correct in saying the cost is outrageous. As a student myself, I have watched over the past 3 years as tuition has been raised every year, along with the fees the students are to pay. Another thing that has gone up is the president of the university’s salary! At Iowa State, we just had our president resign, and AFTER he resigned, we gave him a raise! The new president came in and was started off with a salary equivalent to that of the President of the United States! This is a Land Grant, public university! Why on earth does the president need a $400,000+ salary? The professors aren’t getting anywhere near that, the university continues to try and save money by taking it from the different colleges of the university, rather than looking at the cost of its higher up administrators like the president and provost.

There are obviously a lot of factors involved in the student debt issue, and they will come to light, but by and large, the most significant issue is that tuition and fees continue to go up, yet they still find it acceptable to pay the president of a public university as if he were the president of the U.S.

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- Linda Brees
  
  March 5, 2012 at 3:44 am
  
  Mike, I thought you were a teacher. Or is that a different Mike?
  
  Reply
It’s time! « acburt

March 4, 2012 at 10:39 am

[...] Current Event: This article talks about how people coming out of college are not able to buy houses because they owe so much money for their education. This hurts the ecomony because we need people to buy things but many are not in a financial situation to be purchasing things, especially houses. http://www.educationnews.org/higher-education/college-debts-prevent-graduates-from-buying-houses/ [...]

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