Are
Student Loans Really Killing the Housing Market?– Derek Thompson, The
Atlantic
“Here's a simple
story about student debt and the U.S. economy that you might already know.
Standing tall at $1.2 trillion, the student loan monster has
tripled in size in the last decade for two reasons—more students and more debt.
Seventy percent more students are getting loans, and the typical borrower
is taking on about twice as much. All this debt from school might pay off with
higher wages for graduates, but today this wall of debt is preventing
students from getting on with their lives. Since student debt is concentrated
among young adults who are likely first-time home-buyers, it's particularly
devastating to the housing market.
This is a story I believed, because I read it over and
over—from the Wall Street Journal, Bloomberg Businessweek, the Brookings
Institution, Realtor magazine, and the New York Federal Reserve.
I also believed it because it made a lot of sense. The housing market needs new
buyers, and those new buyers need new debt. But if they're wracked with student
debt, already, they won't buy homes, and the real estate business is toast.
It's a plausible narrative backed up by one key factoid I'd
seen everywhere: That first-time buyers used to account for 40 percent of the
housing market, but now they make up just 30 percent.
But this isn't a fact-fact, according to the Atlanta
Fed. It's a Frankenstein-fact, built with two distinct methodologies
mashed together. The 30 percent number comes from the Realtors
Confidence Index, a newish survey of realtors, and the 40 percent number
comes from the Profile of Home Buyers and Sellers, a more established
survey of households. According to the broader survey, there has been no
major fall-off in first-time buyers as a share of the market. (That spike
in 2009 and 2010 coincides with the introduction of a home-buying tax credit
from the federal government.)
But ... wait. This simply can't be right.
First-time home-buyers still skew young—the median age is 31,
approximately what it's been for a decade—and young people clearly aren't
buying as many homes as they used to.
We have every reason to believe that the decline in
homeownership is related to the incredible rise of student loans among young
and middle-aged households. Student debt can prevent some young borrowers from
taking on debt and student debtors tend to have worse credit scores, as a new
working paper from the Brookings Institution argues.
This whole thing seems like a paradox: Student debt is
destroying demand among first-time buyers, but it's not affecting their share
of the market. What the what?
Here's one explanation from an economist behind the numbers.
“The share of first-time buyers appears to be only modestly below normal," said Lawrence
Yun, NAR chief economist. "But we have to keep in mind that investors
have been more active in recent years, and they’re not included in these
results."
Who are these investors not included in the household
realtor numbers?
They're big companies like Blackstone and American Homes 4
Rent who are going out and paying all-cash for thousands of cheap distressed
properties. Thanks to these behemoths gobbling up homes without any use for
mortgages, all-cash home purchases have grown to 50 percent of the market,
the highest on record. Corporations are acting like people, buying up enough
existing homes and contributing to rising prices in metros across the country.
Meanwhile, the share of 25-34-year olds with homes has fallen by 15 percent
since 2005.
This also suggests that student loans are depressing demand
for homes, but only slightly more than the overall market for homes is already
depressed for various reasons, like under-employment, tighter lending
standards, and a general shift away from ownership. Consider…the
share of student-debtors with mortgages. It's fallen by five percentage points
since 2008. But look at the non-student-debtors: Their appetite for mortgages
is just as low.
In short, there are two housing markets in America. It's not
one for student debtors and one for non-student-debtors. Rather, it's one
market for healthy corporations, who are buying at a historic rate; and one
market for families, which is still quite sick—except for richer folks who are
more likely to qualify for loans or have the cash to pay in full.”
Click here
for the full article.
How Student Debt May Be Stunting the Economy
– Neil Irwin, New York Times
“Is student loan debt holding back the economy? There’s some
new evidence that the answer may indeed be a big ‘yes.’
In the past, it was easy to ignore the role that student
borrowing might play in the overall economy. A decade ago, there was only about
$300 billion in such loans outstanding, and even now the $1.1 trillion in
student loan debt is dwarfed by mortgage debt. But people who borrow money to
pay for their education can’t simply walk away without paying, unlike with
mortgages, car loans or credit cards; there is no equivalent of foreclosure,
and student loan debts aren’t cleared by bankruptcy.
That may all be great from a lender’s point of view. But
there’s a growing body of evidence that rising levels of student loan debt are
restraining the ability of young adults to enter the ‘grown-up’ economy — to
buy a car and to buy a home and start filling it with big stuff.
While the overall level of student debt may not measure up
to that of mortgages — $8.2 trillion — it is highly concentrated among a small
slice of people — those in their 20s and 30s — who are the engines of a great
deal of economic activity. One of the crucial reasons the housing market has
not expanded enough to support robust economic growth is that young adults are
not setting up their own households at anywhere near the historical norm.
Might higher student loan debt burdens be an important
reason? After all, a person with monthly student loan payments of $300 — about
what you would expect for the average new loan balance of $29,400 at
government-subsidized interest rates — is going to be more inclined to bunk
with roommates or Mom and Dad.
One more solid piece of evidence for this theory is
contained in the latest report on household debt issued by the New York
Fed, and an accompanying post on its Liberty Street Economics blog.
In the not-too-distant past — until just before the 2008 financial
crisis, to be precise — around 30 percent of 27- to 30-year-olds had debt
issued backed by a home. Even more interesting, 33 percent of the people in
that age bracket also had student loan debt.
But since then, the proportion of 27- to 30-year-olds with
mortgages has plummeted to around 22 percent, according to the New York Fed
data, which is also consistent with the trends in homeownership identified by
the Census Bureau and other data sources.
Here’s what’s most interesting, though. The proportion of
adults in that age bracket who have a mortgage has fallen most sharply among
those who have student loans as well. Unlike in the past, when they tended to
be more likely to have mortgages (perhaps because of better credit, or more
inclination to take out loans), they now have mortgages at a lower rate than
those with no student debt.
A similar story holds with auto loans. In 2008, 37.6 percent
of 25-year-olds with student loan also had an auto loan, but by last year that
had fallen to 31.4 percent.
And there could be more to the weak housing market than just
student debt overhang. The researchers, Meta Brown, Sydnee Caldwell and Sarah
Sutherland, also mention the possibilities of limited access to credit and a
possible shift in young adults’ preferences away from home buying.
But the evidence certainly fits an explanation of higher
student debt levels as a significant factor standing in the way of a stronger
recovery.”
Click here for the full article.