Home Sales Blocked by Student Debt

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Many have placed blame on student debt for bad home sales in the United States. For example, Roshell Schenck holds a Ph.D. in pharmacology. She has a job that pays her $125,000 per year but because of her $110,000 student loan debt, she does not have a shot at obtaining a mortgage for the purchase of a home.

“I’d love to buy and can afford to buy,” said Schenck, who graduated from Lake Erie College of Osteopathic Medicine in Erie, Pa. “My debt is crushing my chances of purchasing a home.”

  

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For the first time, student loan debt passed credit card debt in 2011. Student loan debt has reached almost $1 trillion, which has dragged down the housing recovery in the United States. Student loan debt has prevented first-time home buyers from making purchases and taking advantage of record-low interest rates.

From 2009 to 2011, nine percent of 29-34-year-olds obtained a mortgage for the first time, according to a study conducted by the Federal Reserve. These numbers should be compared to those from 10 years prior when they sat at 17 percent.

“First-time home buyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly,” Ben Bernanke, the Fed Chairman, said at a conference for homebuilders on February 10 in Orlando.

Students recently out of college carry an average loan debt of $25,000. This debt amount hurts their chances to obtain a mortgage even if they are working full-time with decent pay. The National Association of Consumer Bankruptcy Attorneys issued a warning about the effects of student debt on February 7.

“Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future,” John Rao, vice president of the NACBA, said.

In 2011, 27 percent of those who purchased a home were between the ages of 25 to 34 people, which are the lowest numbers in ten years and is six percentage points below the 33 percent in 2001. These numbers were released by the National Association of Realtors.

“Students coming out of college are burdened with more debt than traditionally they have been, and they are also coming into an economy that is underperforming previous recoveries,” said Rick Palacios. Palacios is an analyst for John Burns Real Estate Consulting in California. “Move-up buyers need somebody to purchase their homes to move. You need that first leg in the recovery to materialize.”

Schenck works as a pharmacy manager at a grocery store in Pennsylvania. Schenck is working on putting more money away for a larger down payment, which could help to increase her shot at acquiring a mortgage.

“I haven’t given up hope of one day owning my own home,” says Schenck. Still, “the dream feels like it’s farther out of reach than I ever thought it would be.”