Student debt is a major crisis that is constantly hovering over the uncertain futures of the youth in the United States. If a real estate expert would go and ask most students or fresh graduates about their plans for the future, the answer would most likely be unknown. America’s youth is fully concentrated on one thing, their education and how to get rid of the hefty debts that come along with it. What effect on real estate does that have?
There is no denying that the student loan debt problem will affect other markets in the near future, and the housing market in specific. How are we expecting the students or graduates in debt to outline the plan for their future homes? These young people are already wasting years of hard earned income to pay off their debts.
The student loan debt has reached astronomical figures after reaching $1.3 trillion; second only to mortgage debts throughout the country. This raises a lot of concerns for the its effect on real estate. How will demand keep flowing if most of the new generation won’t be able to afford purchasing a property for them? The US workforce consists of more than 50 million millennials in which 70% of them are paying off student debts.
Causes of Student Debt
The fact that most young Americans believe in the importance of higher education has driven them to purse education even if they are can’t afford it. This idea resonates with many students and causes them to borrow tens of thousands of dollars with the hopes of repaying them as soon as they get employed. Competition for jobs is another reason that makes millennials do this so they stand out when applying for jobs that will earn them money.
Effect on Real Estate
The housing market is dependent on new investors to keep its sales flowing and supply steady. But if we ask most people facing a student debt if they are willing to invest in a property in the present time, the answer would be a resounding no. This shouldn’t come as a surprise as well because who can afford the luxury of purchasing a property when they are faced with enormous debt.
At this point it is expected that the effect on real estate market will will be a negative one. If like mentioned above 70% of 50 million millennials in the workforce are facing debts, then you can definitely rule most of them out of buying homes. On the one hand the suppliers or contractors selling properties are likely to witness a huge decrease in sales in the years to come. Alternatively, homeowners looking for young tenants are likely to profit, because if you are not a homeowner then you are a renter. Millennials will be dependent on flat sharing or home renting in the early days of their careers.
The final obstacle facing millennials is even if they had the intention to buy property; they probably can’t qualify for a loan. Their student debt is already consuming a good portion of their salary that is it practically removing any possibility of qualifying for a mortgage.
The student debt crisis is real and it’s soaring every year and its effect on real estate cannot be underestimated. The fact that student debt is the second largest debt in the United States says everything about the magnitude of this problem. Millennials want stability; they understand that home ownership is an important investment. The real challenge lies in how well they can override this debt to be able to invest in real estate and other endeavors. At the end of the day, only time can tell how this crisis will unravel.