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Opinion, commentary and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.
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Student debt...housing's future pitfall?

March 4, 2014

The fact that student debt is creating a giant roadblock for housing is no new news.

But the fact that student debt is rising faster than mortgage and credit card obligations and is not stopping anytime soon is.  

According to the New York Fed, fourth-quarter student loans increased by more than 5%, whereas mortgage and credit card debt rose by about 2% in the same period. 

And despite home prices rising, an improving job market and historically low interest rates, the strengthening housing market train might come to a screeching halt due to student loans.  

“Many graduating students are forced to take lower-level jobs because of still-weak employment outlook,” Ron D’Vari, CEO of NewOak, said.

“Bulging student loans make it difficult for young people to save at all, much less set aside down payments for their first homes. The combined effect of student debt burden, lower entry-level salaries and tougher underwriting standards has significantly lowered the ability of prospective first-time home buyers to qualify for a mortgage,” D’Vari added.

According to a recent speech from Steve Antonakes, deputy director of the Consumer Financial Protection Bureau, more than 40 million Americans collectively hold approximately $1.2 trillion in outstanding loan balances, creating the second largest consumer debt market.  

And the side effects are starting to show.

Antonakes explained that student debt is slowing household formation, discouraging business start-ups, inhibiting first-time homeownership and limiting the mobility and options of young graduates who would otherwise consider, say, working in rural communities or as teachers.

“If unresolved, this student debt issue may impact the housing market and the overall economy. For now, the improving economy and job market are simply masking what may become a very serious problem,” D’Vari said.

 

 

 

 

 

 

 

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