Renters Staying Put Because Of Student Loan Debt

Getting on the housing ladder is becoming more difficult than ever.

As populations grow and asset-holders gain more bargaining power over asset seekers and renters, the prices go up as demand outstrips supply.

People are moving into cities and looking for places, but the number of options available increases slowly as fewer greenfield sites become a stark reality, in comparison to decades gone by.

This article details more on the topic.

Market feeling the pinch

While it is a seller’s market, confidence is falling.

House prices, both in terms of buying and renting, are rising so much that open house viewings have lower footfall, and fewer young professionals are deciding to take a mortgage because of the spiraling costs.

See the graph below for this illustrated:

For example, a survey done by the National Association of Realtors (NAR) adds to the picture of a failing market.

Some three-quarters of US citizens responded positively to questions about whether now was a good time to buy; it is a falling percentage, especially among those stuck in high cost renting.

And those aged under 35 were the least optimistic.

Unsurprising, seeing as they have the lowest rate of ownership in history.

And the grass is greener on the side of the landlords, as you’d expect: 4 out of 5 said that it is a good time to buy. equity for them has risen dramatically, as data from Black Knight Finance Services said home equity has risen in the period January to April by a whopping $260 billion.

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Rising prices, rising demand

The all-time peak price for existing-homes was pipped earlier in spring, and there has been an average of 5% growth in house prices, with much higher growth, as high as 10% in the area where there is short supply and high demand.

One famous example is San Francisco, where Silicon Valley’s growth pushed up rents, pushing out residents on lower wages to make way for high earning tech workers.

Homeowners wishing to sell can do so fairly quickly, with investors and first-time buyers seeking to snap up properties left, right and center.

Then they can use their significant equity that’s accumulated over the years towards a new purchase.

And the increase in homes owned by investors and profit-seeking landlords helps to push up the prices renters have to pay.

Those already in debt unlikely to want more

And it is those saddled with debt already, recent graduates or not-so-recent graduates who haven’t managed to pay off their student loans, who are the least likely to respond positively.

Half under 35 who had not paid off their loans said they did not want a mortgage nor believed they would qualify.

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Lawrence Yun is an economist for NAR.

He says that at the time when people are in the prime to get a mortgage, around their early 30’s, they are often put off by the emotional and financial impact of still paying off a student loan.

This has huge effects down the line for stability, both social and financial.

Jorge from Northern Virginia, aged 32, rented for a whole seven years before he bought a home in the spring.

He co-owns a restaurant, and had a salary of below 100k a year, but had already managed to pay off his student debt, which made the process a little easier and less stressful.

He could only afford a one-bedroom flat, and this was largely thanks to a housing program for low-income individuals wishing to get on the property ladder in the DC area.

He says it was a really long process, and he ended up having to simply choose a small apartment.

Saving for the down payment was difficult, but Jorge is thankful he has finally gotten onto the property ladder thanks to the association.

Without it, he would not have been able to do so.

Final Word

New homeowners are currently at an all-time low, at about one-third when the historical average is about 40%.

Higher costs of construction have shifted building trends to more upmarket projects rather than affordable homes, pushing those at the bottom out of the housing market altogether.

The end of the graph shows construction flat-lining while the population continues to increase steadily:

Were the supply of homes at the lower spectrum of house prices built more, this would not be such a problem, but there just isn’t the political will to do this at the moment.

Another problem is easier international transfers as opposed to decades gone by, allowing the upper classes and elites in developing countries to buy homes as investments.

The flip side is that the higher prices are allowing more homeowners to consider selling.

61%, according to the survey introduced before, said that it was a good time to sell, an increase of 6% from the beginning of the year.

So if you have the funds, there is the will to sell.