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July 2016

Student loans curtailing plans to buy, sell homes

Student debt is hampering both home-buying and home-selling plans for the country's 43 million Americans who are repaying their loans. A new survey, reflecting responses from several generations, also reveals that student debt caused four in 10 borrowers to postpone moving out of a family member's household after graduating college.

Seventy-one percent of non-homeowners who are making on-time payments for their student loans believe this debt is stymieing their ability to purchase a home. Slightly more than half of all borrowers say they expect to postpone buying for at least five years, according to a survey by the National Association of RealtorsĀ® and SALTĀ®, a consumer-focused financial literacy program of American Student AssistanceĀ® (ASA).

The study, which only polled student debt holder's current in their repayment, broke down respondents by age group, from younger millennials up to older baby boomers, and also by personal income.

"All of this underscores the fact that student debt isn't just an education policy issue, but an economic one as well. And, it affects far more than just those individuals who took out the student loans," commented John Zurick, president and CEO of ASA in his blog.

Even respondents who already own their own home, say they're affected. Nearly one-third -- 31 percent - of this group said the student debt stalled their ability to sell their existing home and move to another.

Lawrence Yun, NAR chief economist, says the survey findings shed light on the magnitude student debt is having on the housing market and the budget of even those financially able to make on-time payments. While obtaining a college degree increases the likelihood of stable employment and earning enough to buy a home, many graduating with this debt are putting homeownership on the backburner in part because of the multiple years it takes to pay off their student loans at an interest rate that's oftentimes nearly double current mortgage rates, he explained.

Among non-homeowners who believe student debt is delaying their ability to buy, more than three-quarters - including over 80 percent of millennials - said their delay is because they can't save for a down payment. Along with rent, many of these potential purchasers also incur large monthly expenses such as car payments that squeeze their household's budget. Additionally, 69 percent don't feel financially secure enough to buy, and 63 percent can't qualify for a mortgage because of high debt-to-income ratios.

"Nearly three-quarters of older millennials, many of whom graduated at the peak or immediately after the downturn, said their ability to purchase a home is affected by student debt," added Yun."Add in the detrimental effects of low inventory as well as rents and home price growth outpacing wages and it's mainly why the share of first-time buyers remains at its lowest point in nearly three decades."

In his comments, Zurick noted when millennials can't afford to buy the existing homes of the gen Xers who are looking to move up, or the baby boomers looking to scale down, then the whole housing market stalls. It's also more than just home buying, he emphasized, citing  SALT/NAR findings that showed student debt impacts people's ability to take a vacation (tourism industry), buy a car, purchase entertainment, clothes and daily necessities, and start a small business. Seventeen percent said it even affected their decision to own a pet.  

The ASA CEO stressed "we cannot dissuade Americans from pursuing higher education," saying it remains a great investment. "The U.S. desperately needs a college-educated workforce in the global economy of tomorrow, he stated, adding, "It is imperative to the nation's economy that we find immediate and practical solutions to financially empower the 43 million Americans with student debt."

Zurick believes policymakers need to do all they can to lower college costs and amounts borrowed by increasing public investment in higher education, supporting college savings plans, supporting Pell grant funding, keeping federal loan interest rates low, and focusing on college completion efforts.

Survey respondents included 3,230 student loan borrowers who are registered with the SALT program and are current in their repayment. Participants were borrowers who attended public and private four-year colleges, community colleges, graduate school and vocational school.

In its statement, ASA said the survey data validates much of the findings from its own "Life Delayed" study, as well as anecdotal evidence it gathers while counseling student loan borrowers.

Armed with the research, NAR is asking its members to contact members of Congress to urge passage of S.3083, a companion bill to H.R. 3700 which the House of Representatives passed on Feb. 2 by a unanimous 427-0 vote.

In letters and testimony advocating a favorable vote by Representatives, NAR said the proposed legislation, known as the Housing Opportunities Through Modernization Act, provides significant benefits to taxpayers, homebuyers and the real estate and could put homeownership in reach for more families. In particular, NAR championed the inclusion of reforms to current Federal Housing Administration restrictions on condominium financing.

An analysis by The Center on Budget and Policy Priorities (and non-partisan research and policy institute) concluded the proposed measure would streamline and reform federal housing programs to cut costs, encourage work, reduce homelessness, improve families' access to high-opportunity areas, and improve the quality of life for residents of public housing.

The status of S.3083 can be tracked here. To view the complete 20-page report titled "Student Loan Debt and Housing Report 2016 When Debt Holds You Back," click here.