Just how much of a burden is student loan debt on potential first-time homebuyers? Enough to put an 8 percent dent in total 2014 home sales, according to a new study.
Student loan debt prevented 414,000 home sales in 2014, according to the study, by the California firm John Burns Real Estate Consulting. Assuming an average value of $200,000, the company concludes that amounts to $83 billion in lost real estate sales.
The actual numbers could be even higher, according to the company, because the study only looked at student loan debt for persons aged 40 and younger.
Loss of purchasing power
According to the study, a household loses $44,000 in home purchasing power for every $250 per month in student loan payments it must make. Those paying $750 a month or more are effectively priced out of the market unless they're in a high-income bracket.
Some 5.9 million households under age 40 pay at least $250 a month on student loans, according to the study, up from only 2.2 million in 2005. That works out to 35 percent of all households under age 40, up from 22 percent nine years ago.
Total student loan debt has exploded over the past decade, more than quadrupling to $1.1 trillion, compared to $241 billion 11 years ago, according to the report on the study. More than one-third of those aged 20-39 have some level of student debt, it said.
Fewer first-time homebuyers
Student loan debt is thought to be a major factor in burdening sales to first-time homebuyers, who tend to be in the 20-39 year-old age group. Only 29 percent of existing home sales in July went to first-time homebuyers, according to the National Association of Realtors (NAR), compared to a historical norm of around 40 percent.
Those who are managing to buy homes for the first time are leaning more heavily on parents or other family members for assistance. The NAR reports that 27 percent of first-time buyers used a cash gift from family or friends to help make their down payment last year, up from 23 percent in 2009. By comparison, only 14 percent of all buyers used such funds.
Difficulty coming up with a down payment is the most common reason given by renters for being unable to buy a home, according to a recent Federal Reserve annual report on household well-being.