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The Student Debt Drag on Home Buying

Student debt is impacting the housing market, according to David Rosenberg, Gluskin Sheff's Chief Economist & Strategist. In an article published by Business Insider, Rosenberg discusses how high levels of student loan debt are locking many potential buyers out of the market.

“The lack of opportunity has led to the share of 'kids' between the ages of 25 and 34 that are living at home rising to 17% from 12% a decade ago,” Rosenberg said. He also noted how the weight of student loan debt across the country has had a negative impact on marriage and fertility rates, as well as enrollment in post-secondary school, leading to slower household formation.

Outstanding student loan debts have topped $1.6 trillion, up by around 130%‎ over the past decade, and the late payment rate sits at around 10%.

“If you are in arrears on this type of debt, forget getting a FICO score and forget having the leeway to secure any sort of loan for years after missing a payment,” he adds.

“This is one reason why we never did have a normal housing market cycle beyond the 'buy for rent' investor craze that began nearly a decade ago,” Rosenberg said. “The home sales share in this economic expansion represented by the first-time buyer rarely got above 30%, whereas a typical bull market in residential real estate sees this share hovering between 40% and 50% in any given month.”

In the annual letter to shareholders, JPMorgan Chase CEO Jamie Dimon recently echoed Rosenberg’s sentiment, noting how the increase in student loans has held the mortgage industry back.

“Irrational student lending, soaring college costs, and the burden of student loans have become a significant issue,” Dimon said. “The impact of student debt is now affecting mortgage credit and household formation—a $1,000 increase in student debt reduces subsequent homeownership rates by 1.8%. Recent research shows that the burdens of student debt are now starting to affect the economy.”

About Author: Seth Welborn

Seth Welborn is a contributing writer for DS News. He is a Harding University graduate with a degree in English and a minor in writing, and has studied abroad in Athens, Greece. An East Texas native, he also works part-time as a photographer.
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