Student loan debt helps stifle housing market

A generation of college grads, who owe more than $1 trillion, may have to postpone buying a home indefinitely.

By Jason Notte Apr 15, 2013 7:31AM
Overwhelmed young woman holding bills (copyright Corbis)If you have friends just out of college and a few hours to kill, ask them how bad their student loan debt is.


The answer in almost every instance is more terrible than you can imagine. The Consumer Financial Protection Bureau says U.S. students have amassed $1.1 trillion in loan debt -- double what its was in 2007 and greater than any other consumer debt not tied to a mortgage.


Whether graduates have a "useless" degree in liberal arts or a "practical" degree like an MBA, chances are they're being absolutely flattened by school-related debt. Their jobs aren't helping pay down that debt, either, as roughly 284,000 college graduates are making minimum wage and The Center For College Affordability and Productivity reports that nearly half of the college graduates from the class of 2010 are in jobs that don't require a bachelor's degree. A full 38% have taken gigs that don't even require a high school education.


In fact, the only one who seems to be making more money as a result of taking on student loans is Uncle Sam, whose Education Department profited more than $100 billion from student loan debt last year, thanks to low government borrowing costs and fixed interest rates on these loans.


Now, the Federal Reserve Bank of New York has found evidence that student loan debt may prevent a large chunk of an entire generation of college graduates from securing a mortgage and owning a home.


As reported by Bloomberg, two-thirds of student loans are held by Americans under age 40. From the third quarter of 2012 to the fourth quarter, the number of people in that age group who own homes fell by 4.6%, the steepest drop since 1982. That's bad news for big mortgage lenders like JPMorgan (JPM) and Wells Fargo (WFC), but it's even worse for the legions of indebted young Americans dreaming of home ownership.


While foreclosure rates recede, housing supplies dwindle and home prices rise, those strapped graduates are seeing rates on some privately issued student loans jump to nearly 12%. Even though home prices are still 25% below their 2006 peak and mortgage rates hover around a near-record low of 3.5%, first-time homebuyers are still only marginally ahead of investors buying properties to convert to rentals, according to the National Association of Realtors.


In a market where there are three applicants for every job and half of the 37 million people with student loans are deferring payments, the job advantages a degree offers today outweigh the dream home of the future. Despite their debt, college graduates earned a median weekly income of $1,066 in 2012, compared with $652 for someone with a high school diploma, according to the Bureau of Labor Statistics.


And those with bachelors degrees or better saw a 5% to 6.7% increase in employment between 2010 and 2012, while their unemployment rate of 4.5% compared favorably to the 8.3% rate of those with only a high school degree. Those pluses, however, can't hide a major negative when it comes to new grads and homebuying.


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20Comments
Apr 15, 2013 9:56AM
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We can turn this economy around and have 5 to 8% growth. The problem is we American don't have the intelligent, the moral structure, or the guts to get it done. We also, don't have the leadership. Our greatest enemy is our own government (the president, congress and the federal reserve).
Apr 15, 2013 10:06AM
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AND the fault is ??? First the government that made it ridiculously easy for so many to get loans, which goes back 40+  years, but really bad the past 20 and really, really, really the past 5. Second, hand in hand with this "gov't support", the absurdly high tuition, fee, r&b charges that all schools have rammed through, particularly the 50% or more that are at best just extensions of mediocre high schools. To complete this travesty, I'm sure that author Notte and some other nut jobs will now start proposing that the government ( meaning wealthier tax payers) should start bailing out these "kids'  so that the housing market / economy "can recover." 
Apr 15, 2013 9:51AM
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Many of these kids believe that a degree, in and of itself, has some sort of value.  Most of these degrees require virtually no study in math, science and the like. 

Maybe when they graduate and realize that their degree in Sociology, Underwater Basket Weaving, Women's Studies and Left-Handed Origami are useless.

Then discover if they took a class in arithmetic, followed by one in Logic, they might realize they are making poor choices.

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While these grads were studying for their degrees, they took time to go push for obama to be their president. Well, you got him. How's it working out for ya? This story helps answer that question.
Apr 15, 2013 10:51AM
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Housing stifled???? .......... I thought MSN was saying it was doing great? The media is sick and half the problem.

Apr 15, 2013 10:28AM
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I have a BA in chemistry and it's so hard to find a job in California.  With rent $1100 car payment $437 insurance $120 student loan $275 food $300 normal expenses $500 I'm left with nearly nothing by the end of the month.

I'm college educated peasant!
Apr 15, 2013 10:33AM
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Obamanomics 101 - the Socialist Agenda - Make people dependent on the government.

 

Obama pushes government student loans, so you take on huge debt, while the government makes billions, so you can get a minimum wage job, then end up on welfare, which means you can't pay back your loan, or qualify for a mortgage, and now he's got you by the gonads.  And when it all comes tumbling down just like the mortgage bubble, we taxpayers will be on the hook for another multi billion $ bail-out.

 

 

Apr 15, 2013 2:04PM
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This article is a complete lie.  Student loan debt is ALWAYS good and there are never any downsides to borrowing more to further your education, ever.

Sincerely,
Uncle Sam

Apr 15, 2013 1:24PM
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"Now, the Federal Reserve Bank of New York has found evidence that student loan debt may prevent a large chunk of an entire generation of college graduates from securing a mortgage and owning a home."

 

Yup!  There are a couple of 30 year old "toddlers" living at home on my block as well.  The parents don't look too happy either.

Apr 15, 2013 1:36PM
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What a mess we've made for our children. We have the power, the capability and the know how to do the right things yet we do nothing. We continue down the path of robbing Peter to pay Paul, all the while knowing that the house of cards will come crashing down, but our elected officials only care about funding their campaigns, and their contributors only care about making profits right now, not caring about the future. We have been allowing this for decades, when students stop attending these high priced institutions what then??
Apr 15, 2013 9:16AM
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You don't think it has anything to do with hired-in executives giving themselves $2 million an hour pay and everyone else $8/hour?

 

When we have piles of dead "beats" in the roads and REAL America goes back to work growing a fair and good economy again... then the housing crises ends. Ask yourself, is it really worth all this pain to work for psychopaths?

Apr 15, 2013 1:41PM
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There are many aspects that affect this and not one more than the other. It is a domino affect, it may take longer to see one changes implications versus another. Going through 4 years of undergrad and 2 years of grad school straight, I personally have incurred student loan debt willingly. There is no way coming from a financial stressed upbringing that I could have attended college/grad school without it. I think the changes in the government, education system, banking system all impact how tuition and student loans are handled for today's students; which is sad. There is so much emphasis on going through higher education to better yourself. It is very difficult for students to be asked to pay on average $30,000 per year to attend a decent school, but more than half of that has to be covered by loans that have a variable interest rate which accrues interest while the student is in school. Once you have finished school (if you didn't drop out due to financial stress) you then have to worry about how to cover your monthly payments. If you get a job and begin to bring home a decent amount of money where you feel financially stable, the government then decides to penalize you by only allowing a certain amount of the student loan interest to be deducted for tax purposes, but Uncle Sam looks like he doing "a ok". It is a never ending cycle, that not necessarily one particular aspect needs to be looked at, they all need to work collaboratively to identify changes that could benefit all parties involved.

Apr 15, 2013 2:21PM
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I completely disagree that you HAVE to spend 30,000 per year to go to a decent college!  That is baloney.  You can get most basic bachelor's degrees at perfectly good colleges for half of that or less.  And yes, you have to be practical and choose a degree where there is actually a potential job market.  And I also believe that the parents of these college students are partially to blame.  I know many people my age (48) with children the same age as mine, who have always lived beyond their means. They deliberately chose bigger, newer houses they did not need, always drove new cars, and took expensive vacations every year, instead of saving for their kids' college educations or their own retirements for that matter.
Apr 15, 2013 12:12PM
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The student loans are a problem especially when you have to go out and get private loans and the lenders are charging 7-9% interest rates on the loans. Which means the students end up paying 2-3 times if not more than what they borrowed. It is ridiculous that this country can't get it's priorities straight. Lenders should not be allowed to charge more than 2-3% or it should go down when the interest rates go down as they have in the last few years.
Apr 28, 2013 9:06PM
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Here at Student Debt Relief we are able to get your student loans out of default with in 4-6 weeks through several government programs you may qualify for, this will allow you to file your taxes this year and receive a monthly payment that can go as low as $25. This will clear up your credit report and you will then be able to qualify for additional finical aid please give me a call 1-855-429-9577 .
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