Where Are All The First Time Home Buyers?
A few years back, I was Sr. Mortgage Officer for a large CT credit union. Many of our members were young engineers with MBAs and young research scientists with PhDs. These were 25-30 year old Yuppies making $65,000+ per year. True to our creed of “People Helping People”, we offered an aggressive First Home Buyer package aimed at this seemingly upwardly mobile market segment. The program was not a success. Why? … because these kids were burdened with huge college loans that had to repaid.
Nothing has changed over the years. In fact it has gotten worse. In previous recessions, First Home Buyers could be counted on to rejuvenate an ailing housing industry. Not so today. According to the Federal Reserve study, only 9% of 25- to 34-year-olds got a First-Time mortgage from 2009 to 2011, compared with 17% 10 years earlier. “First-time homebuyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices quite broadly,” First-Time Home Buyers are key to a housing recovery because Move-up Buyers and Downsizers need somebody to purchase their homes in order to make a move. The market needs First Time Home Buyers for a recovery in the housing market to materialize and they are not players.
The National Association of Home Builders suggests there is a link between rising student loan debt and recovery from the housing slump. Their analysis suggests that the rise in student loan debt is a shift of the source of higher education financing – one related to housing itself. Namely, with the onset of the housing crisis and the high unemployment related to the economic slump there was a decline in the availability for families to tap into the real estate holdings which had often been used to finance higher education of children by home owning parents. Consequently, students are more likely to take out student loans on their own behalf.” They go on to say, “As more parents face tighter budget restraints as a result of lower home values, this is forcing an increasing number of students to take out their own loans for tuition, essentially shifting some of the burden of paying for college from parents to students.”
Recent college graduates carry an average debt load of more than $25,000, limiting their ability to qualify for mortgages even if they can land a job in a market with an 9% unemployment rate. The National Association of Realtors explains, “Students coming out of college are burdened with more debt than traditionally they have been, and they are also coming into an economy that is underperforming previous recoveries.” These are the First Time Home Buyers we need to stimulate the economy and the housing market.
It may take years before young people can return to the market as homebuyers. Without question, young Americans need to have the ability to pay for college in order to prepare for the jobs of the future. However, America’s mounting pile of student loan debt is a growing drag on the housing recovery, keeping First-Time Home Buyers on the sidelines and limiting the effectiveness of record-low interest rates.