By: Victor Normand
Now that I have your attention, you should know that this blog is about first time home buyers, or to be more specific, the lack thereof, caused in part by student loan debt. The national rate of home ownership is at a 50 year low, partly as a result of a housing market still not fully recovered from the sub-prime mortgage crisis and ensuing recession, but also because buyers in their 20’s and 30’s are not entering the market as they have done in the past. We know those buyers as millennials.
Seventy percent of those 54 million millennials in the workforce have student loan debt and that debt, $1.3 trillion in total, an amount greater than any other type of consumer debt other than home mortgages, is making it very hard to save for a down payment and support a mortgage. According to a survey of borrowers done by American Student Assistance (ASA) done in 2015, 1 in 5 millennials reported postponing marriage and more than half said their student loans were delaying the decision to buy a home.
Residential real estate is a significant contributor to our economy. The economic impacts resulting from this dearth of first time buyers are widespread, everything from construction spending to the purchase of home furnishings is affected as is the ability of existing homeowners to find buyers so that they can move up or out of their homes. But the more frightening aspect of this situation, a crisis in the making, is that the trend shows no signs of abating as demonstrated in the above graph.
Borrowing has gone up for two reasons, the high cost of a college education and the ease with which money can be borrowed to fund those increases. According to the Bureau of Labor Statistics, between 1980 and 2014, the price of a college education increased by 260% while the Consumer Price Index for all consumers only increased by 120%. We need to deal with both issues.
As our economy has changed from manufacturing to service/intellectually oriented, so has the demand for a more highly educated and specialized workforce. Why not recognize this need within the context of our local public education system? Why not add grades 13 and 14 to high schools and have those two grades accredited as associate degrees? Many high schools now offer college level courses so crafting a full curriculum leading to an associate’s degree is not unrealistic. There could be many other advantages to this scheme, not the least of which is a better utilization of our school buildings.
The underwriting of student loans however, may be the real problem that needs to be addressed. Consider a lending environment where borrower income is not considered, nor are borrower assets, nor the underlying value of what borrowed funds would be used for. Consider if this were how home mortgage loans were made, actually, there was a time not that long ago when that was exactly how some home loans were made and we all know how that turned out!