First-time homebuyers stalled by student loan debt

By Sari R. Updated on 4/19/2013

According to a study conducted by the Federal Reserve Bank of New York, thirty-year-olds who are still paying off student loans are less likely to have a mortgage than those with no educational debt.

Ten years ago, thirty-year-olds with a moderate amount of debt were still more likely to have a mortgage than those without any educational debt, thanks to high levels of employment and income.  The relationship between the two changed during the recession as homeownership rates fell.  All of a sudden, thirty-year-olds with no debt saw their rates drop by 5 points; homeownership rates among those with student loans fell by 10 points.

In 2012, the homeownership rate for those with debt was around 2 points lower than those with no student loans or debt.  This means that thirty-year-olds with no debt are more likely to have debt that is home-secured than the thirty-year-olds with debt.

The mortgage delay is intrinsically linked to more and more students taking on student loans at higher levels.  The average number of 24-year-olds with educational debt increased to 43% in 2012 from 25% in 2003.

This is bad for the housing market for the following reason: students were paying more for school in the recession, but still participated in the deleveraging process that happened after the recession.  Students are deleveraging by steering clear from mortgage and auto debt – which is stalling other components of the economy.

On average, per capita debt for students declined $5,687 from 2008 to 2012, the four-year deleveraging period.  This is consistent with the widespread deleveraging that all consumers saw nationwide during this time period.  Those individuals without educational loans noticed that their per capita consumer debt decreased by $7,095 in four years.

Student borrowers deleveraged and scaled back after their debt levels reached an average peak of $35,559 in 2008; they have also been scaling back like the rest of the nation.  The problem for those selling homes is that student borrowers are doing this by avoiding home and auto loans outright.