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
| Apr 12, 2012
Solar PV carport, electrical charging stations unveiled in California
Project contractor Oltman Construction noted that the carport provides shaded area for 940 car stalls and generates 2 MW DC of electric power.
| Apr 11, 2012
Shawmut appoints Tripp as business development director
Tripp joined Shawmut in 1998 and previously held the positions of assistant superintendent, superintendent, and national construction manager.
| Apr 11, 2012
Corgan & SOM awarded contract to design SSA National Support Center
The new SSA campus is expected to meet all Federal energy and water conservation goals while achieving LEED Gold Certification from the United States Green Building Council.
| Apr 11, 2012
C.W. Driver completes Rec Center on CSUN campus
The state-of-the-art fitness center supports university’s goal to encourage student recruitment and retention.
| Apr 10, 2012
JE Dunn completes two medical office buildings at St. Anthony’s Lakewood, Colo. campus
Designed by Davis Partnership Architects, P.C., Medical Plaza 1 and 2 are four-story structures totaling 96,804-sf and 101,581-sf respectively.
| Apr 10, 2012
THINK [about architecture] Scholarship enters 15th year
Students are invited to submit two-minute creative videos that illustrate how they interact with their school's design and what the space makes possible.
| Apr 10, 2012
Structured Development & Bucksbaum close on new retail site in Chicago
The site is the location of New City, a mixed-use development that will feature 370,000-sf of retail space and 280 residential rental units.
| Apr 10, 2012
Moriarty & Associates selected as GC for Miami’s BrickellHouse Condo
Construction of the 46-story development is schedule to get underway this summer and be completed in 2014.