Loss in home equity shifts college debt to students
An analysis by the NAHB says that more students are taking out their own loans to pay for college. But the builders group doesn't expect student debt to drag down the market.
A new analysis by the National Association of Home Builders suggests that the loss of home equity is changing the way American families pay for college. But according to the NAHB's analysis, the growth in student debt is not holding back the housing market significantly, as other sources have suggested.
A recent survey by the Federal Reserve noted that the net worth of the typical family fell 40% between 2007 and 2010, and much of that was from families' loss of home equity. With that loss of equity has gone parents' ability to borrow to send their children to college. That means that more young people are taking out their own college loans.
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"The rising student-loan debt problem is another consequence of the housing downturn," NAHB Chairman Barry Rutenberg, a homebuilder from Gainesville, Fla., said in a news release. "As more and more parents face tighter budget restraints as a result of lower home values, this is forcing an increasing number of students to take out loans for tuition, essentially shifting some of the burden of paying for college from parents to students."
Other reports have suggested that young people's rising debt is hindering the housing recovery, because young people can't afford mortgages to buy homes because of their high student-loan payments.
A Bloomberg Businessweek story quoted a Federal Reserve study saying that only 9% of young adults age 29 to 34 got their first mortgage between 2009 and 2010, compared with 17% of people in that age group a decade earlier.
"First-time homebuyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly," Fed Chairman Ben Bernanke, quoted in the article, said at a homebuilders’ conference in Orlando, Fla., in February.
But the NAHB analysis of the data said the effect of rising student-loan debt would not be a significant factor in the housing market. At the Eye on Housing blog, the NAHB wrote:
So the IRS data and the Fed data on delinquency rates suggest that student-loan debt burdens are, for the most part, not going to have a massive effect on housing demand. This is not to say that there are not cases where individuals obtain very large amounts of student-loan debts and then find have trouble finding a job or a job with sufficient income to pay those debts. But the data suggest that these cases are the exception, rather than the rule.
What do you think? Will student-loan debt have a significant effect on the housing market in the coming years?
The problem with this economy is debt, exported jobs, overeducation....
The single most important issue is the housing market. All these economist and financiel prognosticator are focused on jobs. While jobs in the U.S. are of primary importance, our economy is driven by consumer spending. Currently, the typical citizen is feeling very insecure because of the devaluation of his most signicant asset (his home). Until a bottom is found to the housing market the consumer will continue to be frugal and the rest of the economy will continue to stagnate. A major factor to the economic malaise is as much psychological as it is financial. This is not a new concept, Adam Smith and John M. Keynes both recognized it as a major economic factor.
The problems in theU.S. reminds me of the board walk game Wac-A-Mole. Our leaders have no consensus on what to address first. Just address what the issue is that day. Medicare, wellfare, Afganistan, jobs, abortion, .......God forbid any of our elected officials do anything to contain the excesses of the banking industry, the worlds largest casino. NO ONE seems to have any cohesive plan for leading this economy out of this depression (no, it's not a recession). Our leaders seem to think it will eventually happen by itself, some sort of magic or devine intervention!
Until the housing market is addressed nothing will change. The potential consequences of a disillusioned populace could devastating.
The article points out a 40% loss of family net worth, between 2007 and 2010.
2011-2012 are yet to be determined,
This mess will take another 10 years to stabilize.
Either share when renting or move in with the folks, but don't buy a house.
Buying a modest hous is cheaper than payeing for an apartment, apartment over $700 amonth + utilities
House(depending were bought) My house $420 a month+ utilities Of course where you live effects what you pay. I sure can afford this house easier than an apartment. came through all tis housing nightmare and never missed a beat. surely do feel sorry for the people that lost there homes. As for the ones who were strumming the interest rates for personnell gains only. I have no pity.
I worked for a really smart guy who taught me long ago, " If you owe me money that's good for me. If you me me too much money, that's good for you."
There are ways around this seeming dilemma -- do that which I did:
1. Attend a lower cost state college.
2. Work and save all during high school and college.
3. Buy a small, lower priced first home.
4. Build your own medium size home with your own labor a decade or two later.
All of this is very possible if you're willing to work hard and save. But who does those things anymore?
About Teresa Mears
Teresa Mears is a veteran journalist who has been interested in houses since her father took her to tax auctions to carry the cash at age 10. A former editor of The Miami Herald's Home & Design section, she lives in South Florida where, in addition to writing about real estate, she publishes Miami on the Cheap to help her neighbors adjust to the loss of 60% of their property value.