The housing recovery could lose steam amid escalating student loan debt carried by millions of Americans. With so many people owing so much for their college education, a generation of potential buyers is being discouraged and even blocked from making their first home purchase.
Recent improvements in the housing market have been fueled primarily by investors, but that demand now appears to be ebbing as both prices and borrowing costs rise. A recent Mortgage Bankers Association (MBA) analysis determined that loan applications for home purchases have decreased almost 20 percent in the last four months versus the same period a year earlier. First-time buyers are simply not stepping up to fill the void, having accounted for only about 33 percent of activity over the last year -- well under the historical norm.
The concern is that many young adults can no longer save for a down payment or qualify for financing. MBA Chief Executive David H. Stevens laments, "Student debt trumps all other consumer debt. It's going to have an extraordinary dampening effect on young peoples' ability to borrow for a home, and that's going to impact the housing market and the economy at large." The outlook darkens even more with the prospect of an FHA policy change that could take place this year. The agency currently lets its lenders to ignore student debt that is deferred for a year or more when evaluating a borrower's eligibility; but it is considering eliminating the waiver.