What’s different this time: Surging student loan debt threatens homeownership

[SD Transplant]

Source:

http://www.housingwire.com/2011/12/12/surging-student-loan-debt-threatens-homeownership
Monday, December 12th, 2011, 1:53 pm

College graduates may not be able get onto the property ladder as soon as they’d like due to the costs associated with funding higher education.

According to Rick Palacios, a senior research analyst at John Burns Real Estate Consulting, student loan debt now totals $865 billion, which is an average of $25,000 per student.

“Student loans are going to be yet another hurdle for the housing market to overcome,” Palacios said. “Faced with mounting student loan debt, poor job prospects and stagnant wages, an increasing number of people aged 25 to 34 have moved back in with their parents.”

According to John Burns, almost 6 million 25- to 34-year-olds now live with mom and dad. This number is up 26% from 2007.

The current rate of homeownership rate for this demographic stands at a 10-year low for under 30s. The rate for 30- to 34-year-olds is even worse, at its lowest rate in 17 years.

“The debt load is so high, and the job outlook so bleak, that student loan default rates have almost doubled,” he wrote in a note to clients. “With the economy little improved since 2009 default rates are bound to rise further.”

This number is greater than all credit card debt outstanding, and second only to mortgages in terms of total national debt.

“Even more troubling is the rise in debts associated with for-profit college and trade schools, whose revenues come primarily from debt available through federal government programs.,” said Palacios.

On Oct. 25, the Obama administration announced that it is taking steps to increase the affordability of higher education and aid those laden with outstanding student loan debt. In the short term, until the changes can take, current graduates will be relegated to the rental markets.

Their eventual introduction into the housing market will provide a boost, unless their credit profiles are degraded from lack of student loan repayments.

Write to Jacob Gaffney.

Follow him on Twitter @jacobgaffney.

[(former)FormerSanDiegan]

I set foot in San Diego in 1993 in the 25-34 year age bracket with 20K in student loan debt and 10K in credit card debt. At that time unemployment as about 8% and home prices only went down.
I am pretty sure the homeownership rate for my demographic had decreased and was probably at a 10-year low.

These were negative factors, but not necessarily indicative of whether it was a good time to purchase real estate or not. We ended up buying a house in 1996 and it turned out fine (actually better than fine).

By definition these types of indicators are typically at their worst in the bottom of a cycle.

[jimmyle]

$20k isn’t too much. My student loan was $15k (which is larger than $20k now) in 1999 and interest rate was much higher. Paid within 5 years.

[bearishgurl]

If recent graduates did NOT take on student-loan debt, majored in a degree which is WORTH something to employers and chose to live in and look for work in a city/area which has companies who are hiring, their outlook is MUCH better than this story indicates. These recent grads will be able to buy RE in the next few years, IMO.

The students who graduated with voluminous student loan debt and even cc debt and/or who chose to get a degree in something which does not prepare them for a job immediately after graduation have put themselves into the situation they are in today, IMHO. It’s due to their bad choices every bit as much as (if not more than) a “slow economy.”

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