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Real Estate

Total student debt could buy every U.S. house on market…twice

The implications this brings for homeownership

Total student debt in the U.S. reached $1.5 trillion, a new all-time high, according to a new study by realtor.com. But what does that mean for the housing market?

The number $1.5 trillion sounds like a lot, but how much is it really when you break it down? Divided out, the average student loan borrower owes about $34,500, that’s $8,500 more than the typical down payment of $26,000, or an average 10% of the median home price of $260,000.

Put another way, $1.5 trillion is enough to buy every single home on the market in the U.S. Twice.

Let that sink in.

“Student debt has ballooned to an all-time high as the price of education continues to outpace wage growth, and this is holding back many potential buyers from being able to purchase a home,” realtor.com Senior Economist George Ratiu said. “Student debt is already impacting borrowers’ ability to buy a home and education debt is expected to hamper consumers’ financial decisions for many years down the road.”

The Department of Education explained that because wage growth is stagnant compared to the rapidly rising costs of education, students are taking on more debt than ever before to cover their expenses. Since 1986, tuition at public universities has grown at four times the rate of wage growth.

Millennials make up 34% of all student borrowers, and hold about $498 billion in student debt. They have an average balance of $33,000 per borrower, which is $7,000 more than the typical down payment on a median home.

“The important implication of rising debt is that young generations are delaying major life decisions,” Ratiu said. “On the real estate front, the affordability crisis in major cities is driving young families to more affordable midwestern and southern markets, where savings for a down payment stretch much further and can turn owning a home from a future dream into today’s reality.”

In a paper released at the beginning of this year, the Federal Reserve estimated that about 20% of the decline in homeownership among young adults could be attributed to increased student loan debts since 2005.

And a recent report from Zillow showed half of renters and almost 40% of buyers surveyed said student debt caused them to delay buying a home. Not surprisingly, this factor weighs most heavily on younger generations, including Millennials and Gen Z, especially when trying to qualify for a loan.

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