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Student Debt and The Mortgage Industry


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Student Debt and The Mortgage Industry

In a new study conducted by John Burns Real Estate Consulting, a large part of the drop in home sales over the past year is linked to student loan debt. According to the study, 8% fewer home sales will take place in 2014 than normal, purely due to student loan debt. The study is quoted as saying, “Our conclusion is that 414,000 transactions will be lost in 2014 due to student debt,” wrote Rick Palacios Jr. and Ali Wolf, authors of the study. “At a typical price of $200,000, that is $83 billion per year in lost volume.”

In just 11 years, student debt has risen dramatically from 241 billion dollars to $1.1 trillion.  In all, 29 million people between 20 and 39 have at least some student debt. Those 29 million people translate to about 16.8 million households. “Of the 16.8 million households, 5.9 million (or 35%) pay more than $250 per month in student loans, which inhibits at least $44,000 per year in mortgage capability for each of them,” the study concluded.

“While we applaud the increasing education, we need to realize that it comes with a cost known as student debt,” Palacios and Wolf wrote. “We raised the red flag on student debt back in 2011 and continue to believe that this debt will delay homeownership for many, or at least require that they buy a less expensive home.”

Given the bleak outlook on housing market related elements connected to student debt levels, it is safe to assume that students are more often than not choosing to rent rather than buying homes. This boasts an opportunity for investors in the mortgage industry in both residential and commercial real estate.

For more information regarding commercial and residential mortgage loans, contact the specialists at HML Investments today.

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