The climbing levels of student loan debt, already surpassing $1 trillion, will likely reduce U.S. home sales by 8 percent this year, according to a report out Friday John Burns Real Estate Consulting, an advisory firm.
The impact of student loan debt will translate in some 414,000 “lost” households. At a typical price of $200,000, that’s $83 billion per year in lost volume.
The firm’s study looks at households run by those under the age of 40, which account for about two-thirds of student debt holders.
These debt loads will cause the postponement of home purchases for many borrowers. Other borrowers will opt for less expensive homes because of tight lending standards that take into account existing debt burdens such as student loans and credit card balances.
The advisory firm’s report estimates that every $250 per month in student loan debt reduces borrowers’ home purchasing power by $44,000.
Moroever, some 3.8 million additional households have at least $250 per month in student debt since 2005.
About 35 percent of households headed by those under the age of 40 have monthly student debt payments exceeding $250, up from 22 percent of households in 2005.
The typical first-time buyer can qualify for a $234,080 mortgage without any student debt, but that figure falls as the monthly debt burden rises, the study says. The finding assumes that the first-time buyer has an income of $61,000. Most Lenders won’t issue mortgages to borrowers whose total debt montly payments exceed 43 percent of their gross incomes.