Report: Mounting student loan debt may harm housing market
With ever-increasing tuition costs and high student debt amounts, it is no surprise that fewer recent college graduates are finding themselves a financial position to buy a home than members of previous generations. But now, financial analysts are saying that the mounting student loan debt and resulting inability to make large-scale purchases could cause significant damage to the already-struggling housing markets in Georgia and throughout the country.
According to a new report, tuition expenses have risen about three times as fast as wages in the past decade. Specifically, tuition rose by about 57 percent since 2001, while the average wage for workers between the ages of 25 and 34 fell by 7 percent. At the same time, student loan debt has skyrocketed, with the amount of total student debt held by American college students and graduates exceeding a staggering $1 trillion in recent months.
With that number only expected to increase in the coming months and years, financial analysts believe that student loan debt will soon become a significant drag on the housing mortgage. Mortgage lenders will likely not approve applicants who have high debt-to-income ratios, and those who are approved will not be able to afford to take out a mortgage because of their debt has resulted in a prohibitively high interest rate.
As a result, the number of homeowners in the U.S. will likely decline. This is an unfortunate development for the housing market, which is desperately in need of new homebuyers for its own recovery. Clearly, something needs to be done about the amount of student loan debt in the U.S. before it starts to affect even more areas of our economy.
Source: Bloomberg, “‘Explosion in Student Debt’ Drags Down Housing: Chart of the Day,” David Wilson, April 16, 2012