The Ripple Effect of Student Loan Debt

Fibo Quantum

A new report out of Dallas and WFAA, states that high levels of student loan debt is hampering the housing market in Dallas-Fort Worth, preventing potential homebuyers from purchasing a home. 

“From a practical perspective, somebody coming out of school with heavy student loan debt may simply not qualify for a conventional loan,” said Rick Sharga, founder, President and CEO of CJ Patrick Co., a California-based real estate and financial services consulting firm.

Sharga added that millennials came into the market after the Great Recession, many of which had record levels of student-loan debt, and into a market with no jobs.

“The notion of them being able to pay back that student loan debt in any reasonable period of time was pretty much a fantasy,” Shagra said. 

Ilyce Glink, who writes a syndicated column titled, “Real Estate Matters,” said many millennial have stopped paying student loans altogether. 

“First they were delinquent, and then they just stopped,” Glink said. “Then you’ve got a huge chunk—and I mean tens of millions of people—who now have lower credit scores, which of course are the defining factor for all things mortgages.”

The report states that 44 million borrowers owe around $1.6 trillion in student loan debt. 

“[Today] if you have a 680 credit score, which used to be the bulk of the lending market, you have to crawl over a field of broken glass to qualify for a loan,” he said.

Shagra said that while home prices fell at the end of the Great Recession, declining about 35% from their peak, prices have rebounded much quicker than many anticipated. 

According to CoreLogic’s latest Home Price Index (HPI), national home prices rose 3.6% year-over-year in May 2019.

The report adds that CoreLogic is forecasting prices to increase 5.6% from May 2019 to May 2020. The May 2019 gains was lower than the 6.4% increase of May 2018, but a slight increase from March 2019’s 3.3%. 

Homes in the lower-price tier saw the largest annual increases at 5.4%. The middle low-to-middle tier rose 4.5%, middle-to-moderate price tier increased 4%, and the high-price tier jumped 3%. 

CoreLogic stated the overall HPI has increased annually every month since March 2012, and grown 61.1% since bottoming out in March 2011. The overall HPI in May 2019 was 8.3% higher than its pre-crisis peak in April 2006. Home prices increased 2.6% year-over-year in May 2019, and were 11.6% below their peak.