Home sales may be on the rise, but they’re not nearly as high as they could be, according to a new report from John Burns Consulting based in Irvine, California. The report, by Rick Palacios Jr. and Ali Wolf finds that:
…the impact of student loans on home buying for households under the age of 40…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.
Palacios and Wolf add that their estimate is conservative because they limited their analysis to people under 40 years old. They also found that:
- 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. …
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.
These findings are not isolated. The Los Angeles Times’ Tim Logan recently catalogued a number of studies that all reached a similar conclusion:
There are two things nearly everyone agrees on: Student debt keeps growing. And as it does, its effect on the housing market will need more study.
“We’re hoping to look more into it,” Palacios said. “It’s scary how much debt there is out there.”
Years of federal involvement in higher education has not made college more affordable. Better incentives, such as funding students with demonstrated need directly in the form of performance contracts, would make college and universities more responsive, efficient, and streamlined.
After all, US Education Secretary Arne Duncan justified his department’s takeover of student lending because he claimed he wanted to get rid of private-lender “middle men.” Why not get rid of the biggest middle man of all: the federal government.
Rather than sending tax dollars to Washington, DC, tax dollars should remain closer to home so elected state officials can devise their own programs for students with financial need, encourage the expansion philanthropic and corporate scholarship organizations, and promote individual savings through education savings accounts (ESAs). That’s the better path to affordable higher education and home ownership.