Student loans present a lot of burden for many who carry the debt from their university days. Some economists have even warned that rising student-debt levels will hurt the housing market. But a new report by Zillow contradicts these warnings and shows that student debt isn’t holding back most young professionals from buying a home.
The report found that having more student debt had only a slightly negative effect on homeownership for people with their degrees. Statistically, a couple with no student loans and at least one bachelor’s degree have a 70% chance of owning a home in their early 30s. A couple with $30,000 in student debt and at least one bachelor’s degree have a 68% chance. Couples that owe $50,000 in student loans and have at least one master’s degree have a 75% chance of homeownership. Couples with $10,000 in loans and nothing beyond bachelor’s degrees have a 69% chance of owning a home. The probability of owning a home changes little based on how much the couple’s debt is, especially if it means they have more education.
However, for those who rack up student debt, but don’t get a four-year undergraduate degree the probability of buying a home is a lot lower – in households with $30,000 in student debt but no degree, the probability of buying a home by their early 30s drops to 40%.
According to Zillow, the takeaway of the report is households with more education tend to have better career prospects, helping them maintain good credit histories and the ability to convince lenders they are a safe credit risk, even if they still have sizable student loan payments.
Student loans have been blamed for holding people back from buying their first homes. It is believed that this produces a drag on the housing market because it means there are fewer new potential buyers to help drive demand. Jason Houle, an assistant professor of sociology at Dartmouth College, has done research that has similarly shown little correlation between student debt and lack of homeownership. He found that nearly 21% of student debtors were homeowners, compared with 13% of nondebtors.
Houle said, “I think what people have been doing in the past is looking at this scary spike in student loan debt and looking at declining homeownership among young adults and [concluding] there must be cause and effect.” Some economists said headlines about record high student debt might obscure other reasons why young people are struggling to buy a home. For one, rents have risen sharply in recent years, making it more difficult for people to save for a down payment.
“Some college grads with student loans may well have to delay their transition to homeownership until their earnings rise sufficiently or they have paid down their student debt sufficiently,” wrote Frank Nothaft, chief economist at CoreLogic Inc., in an email. “They ultimately become homeowners, but at a later point in life.”
What have you seen to be the biggest cause of the low homeownership rate among young professionals?
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