Not only is student loan debt delaying first-time homebuyers, it is delaying them for a long time.
Seventy-one percent of non-homeowners with debts from student loans said the burden of those monthly payments was keeping them from buying a home. More than half said it would likely continue do so for more than five years, according to a new study by the National Association of Realtors and SALT, a consumer literacy program provided by nonprofit American Student Assistance.
Student debt is also keeping 4 in 10 graduates from moving out of a family member’s house. The survey of 3,000 people conducted in April covered only those who are making on-time payments on their student loans.
The largest share of those postponing homeownership was among older millennials, aged 26 to 35, and among those carrying the most debt, about $70,000 to $100,000. Still, no matter what the amount of debt, more than half of non-homeowners in each generation report that it is postponing their ability to buy a home. Nearly half of younger millennials polled currently live with family, some paying rent, some not.
College graduates overall are more likely to have stable employment and more likely to earn enough to buy a home; student loan debt, however, is clearly outweighing the benefits of a college degree. Interest rates on student loan debt can be considerably higher than mortgage interest rates.
“A majority of non-homeowners in the survey earning over $50,000 a year — which is above the median U.S. qualifying income needed to buy a single-family home — reported that student debt is hurting their ability to save for a down payment,” said Lawrence Yun, the Realtors’ chief economist. “Along with rent, a car payment and other large monthly expenses that can squeeze a household’s budget, paying a few hundred dollars every month on a student loan equates to thousands of dollars over several years that could otherwise go towards saving for a home purchase.”
Eighty percent of the millennials surveyed said student debt was hampering their ability to save for a down payment. There are low down payment options for first-time buyers, like government-insured FHA loans at 3.5 percent down or Wells Fargo’s latest offering at 3 percent down, but these loans have strict limits on the amount of debt the borrower can carry in relation to income. Student loan debt is a major factor in that.
Student loan debt is also holding back potential sellers. Nearly one-third of current homeowners surveyed said they were delaying selling because of it. Nearly one-fifth of those said it was simply too expensive to move and upgrade because of debt payments. Seven percent their credit had been scarred by issues with student loans and 6 percent said they were still underwater on their mortgages because student debt limited their ability to pay more into their home loans.
All of this is playing into the very low inventory problem plaguing today’s housing market. Younger homeowners are unable to afford a move up, and older homeowners are still housing their adult children, unable to downsize. With so few listings for sale, prices continue to push higher. The overall market is starting to show some resistance to these high prices, but the gains are not easing very much.