DemographicsNational Housing Market Outlook

Student Loans Will Cost the Industry $83 Billion this Year

Rick Palacios Jr photo

Rick Palacios Jr

September 19, 2014

8% fewer homes will transact than normal in 2014, purely due to student debt.

This week, our clients received a 30-page paper that assesses the impact of student loans on home buying for households under the age of 40. Our conclusion is that 414,000 transactions will be lost in 2014 due to student debt. At a typical price of $200,000, that is $83 billion per year in lost volume.

Source: John Burns Real Estate Consulting, LLC

The analysis was quite complicated and involved a few assumptions, but we believe it is conservative, primarily because we looked only at those under the age of 40 with student debt.

At a high level, the math is as follows:

  • Student debt has ballooned from $241 billion to $1.1 trillion in just 11 years.
 
  • 29 million of the 86 million people aged 20–39 have some student debt.
 
  • Those 29 million individuals translate to 16.8 million households.
 
  • Of the 16.8 million households, 5.9 million (or 35%) pay more than $250 per month in student loans, which inhibits at least $44,000 per year in mortgage capability for each of them.
 
  • About 8% of the 20–39 age cohort usually buys a home each year, which would be 1.35 million transactions per year.
 
  • Using previous academic literature as a benchmark for our own complicated calculation, we then estimated that today’s purchase rate is reduced from the normal 8% depending on the level of student debt—ranging from 6.9% for those paying less than $100 per month in student loans to less than 1% for those paying over $1,300 per month. Other factors contribute to even less entry-level buying today.
 

While we applaud the increasing education, we need to realize that it comes with a cost known as student debt. We raised the red flag on student debt back in 2011 and continue to believe that this debt will delay homeownership for many, or at least require that they buy a less expensive home.

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About The Author

Rick Palacios Jr photo
Rick Palacios Jr
Managing Principal, Director of Research
Rick oversees and guides JBREC’s research platform while coaching his team daily.

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