2016 Survey – Student Debt Could Slow Home Market

17 June 2016 by Mark Waterman

National Association of Realtors (NAR), Chief Economist Lawrence Yun, commented that first time buyer market’s share of purchases is as low as it has been for around 30 years. This is chiefly caused by the high level of student debt within this group of buyers. The desire to buy is there, but stricter conditions from mortgage lenders and debt repayment soaking up disposable income is having an effect on the market.

Among non-homeowners taking part in the survey, nearly 80% of the respondents stated student loan debt is delaying their ability to save for a down payment and purchase a home. The full report can be read here 2016 Student Loan Debt and Housing Report.

Over 60% say they can’t qualify for a mortgage, due to high debt-to-income ratios and also feel insecure about their ability to pay and maintain their repayments with and average student debt of $50,000.
The lack of first time buyers confidence and ability to purchase is of course is not an isolated problem and has a ripple effect, both on values and market activity further up the home buying chain.
There are also other groups affected by lingering debt including those in “Gen X” and “baby boomers” who are also statistically more likely to have high debt to income ratios.

Lack of Market Knowledge

Some 20% of the NAR survey commented that they felt concerned at their lack of financial know how and that was discouraging them from making the leap to buying their own home, even if they could afford it. A significant number of respondents, some 40% also suggested that navigating the home market was a significant worry that also delayed their decision. They also could often not afford to live in the location they desired or needed for employment.

The Effect of High Debt to Income Ratios

The knock on effect is one of congestion at multiple levels in the home buying ladder and one which has implications further for buyers and sellers alike. One of the direct results is that would-be home buyers are now remaining with their parents or family members much longer, in an effort to save for a down payment and reduce their student debt.
When we interviewed realtors for this article, some commented that some Millennials have less confidence in buying their own home, concerned that a future market crash will happen again. This, ironically has helped fuel the increase in rents seen in areas such as Phoenix, AZ, great news for investors searching for high yields, but pushes the first time buyer dream of owning their own home, further away. To contact a realtor within the Phoenix area for rental homes, buying or selling click the link to get the latest advice, or view the latest listings.
If you have been personally affected, please leave us a comment or email us directly at email info@at-a.net