Eight percent fewer homes will transact in 2014 than normal, purely due to student loan debt, according to analysis by Rick Palacios, Jr., and Ali Wolf of John Burns Real Estate Consulting.
In a new 30-page paper, the firm assesses the impact of student loans on home buying for households under the age of 40. Its conclusion: 414,000 transactions will be lost in 2014 due to student debt. At a typical price of $200,000, that equals $83 billion in lost volume.
Palacios and Wolf explain their methodology and findings:
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.
Related Stories
| Nov 4, 2014
HOK breaks ground on colossal research complex for LG in Seoul
Located in Seoul’s Magok District, the LG Science Park provides facilities to support innovative research and industrial prototyping. HOK designed phase one of the master plan and six of the laboratory and office buildings.
| Nov 3, 2014
IIT names winners of inaugural Mies Crown Hall Americas Prize
Herzog & de Meuron's iconic 1111 Lincoln Road parking garage in Miami Beach, Fla., is one of two winners of the $50,000 architectural prize.
| Nov 3, 2014
Cairo's ultra-green mixed-use development will be topped with flowing solar canopy
The solar canopy will shade green rooftop terraces and sky villas atop the nine-story structure.
| Nov 2, 2014
Top 10 LEED lessons learned from a green building veteran
M+W Group's David Gibney offers his top lessons learned from coordinating dozens of large LEED projects during the past 13 years.
| Oct 31, 2014
Dubai plans world’s next tallest towers
Emaar Properties has unveiled plans for a new project containing two towers that will top the charts in height, making them the world’s tallest towers once completed.
| Oct 30, 2014
CannonDesign releases guide for specifying flooring in healthcare settings
The new report, "Flooring Applications in Healthcare Settings," compares and contrasts different flooring types in the context of parameters such as health and safety impact, design and operational issues, environmental considerations, economics, and product options.
| Oct 30, 2014
Perkins Eastman and Lee, Burkhart, Liu to merge practices
The merger will significantly build upon the established practices—particularly healthcare—of both firms and diversify their combined expertise, particularly on the West Coast.
| Oct 29, 2014
Better guidance for appraising green buildings is steadily emerging
The Appraisal Foundation is striving to improve appraisers’ understanding of green valuation.
| Oct 29, 2014
Increasing number of design projects meeting carbon reduction targets, says AIA report
Of the 2,464 projects accounted for in AIA's 2030 Commitment 2013 Progress Report, 401 are meeting the 60% carbon reduction target—a 200% increase from 2012.
Sponsored | | Oct 29, 2014
What’s the difference between your building’s coating chalking and fading?
While the reasons for chalk and fade are different, both occurrences are something to watch for. SPONSORED CONTENT