Student debt, a drag on real estate?

Student debt is becoming a major concern, not just for the borrowers with the obligation to repay, but it is also effecting other parts of the economy. The US student debt pile is estimated at $1 trillion. The average debt balance stands at $35,000 per borrower. The Mortgage Bankers Association states that the nation's crushing student debt is a contributing factor in the sluggish home-buying market.

The debt servicing obligations of borrowers makes it difficult to put aside enough savings towards a down-payment, or to have enough excess cash-flow to afford a monthly mortgage payment.

The National Association of Realtors (NAR) polled recent home-buyers and found that student and credit card debt played a large part in the ability and timing of making a home purchase. Of the respondents aged under 34, 20% stated it took longer to buy a home mostly due to student debt. Of the respondents aged 34 to 48, 15% also delayed buying a home due to debt, 35% citing student debt, while 46% citing credit card debt as the main factors.

President Obama is now addressing this issue and has widened an existing program, known as "Pay as You Earn", that restricts student borrowers repayments to 10% of their monthly income. Previously this program was only open to borrowings taken after October 2007, but this time limit has now been removed allowing up to 5 million more people to take advantage of it. In addition there is a Senate Bill proposing to make it easier for borrowers to refinance their student debt at lower prevailing interest rates.

As it stands, the current predicament that student borrowers find themselves in is one of a delayed home purchase which results in either an extended stay with parents, or more likely a medium-long term apartment rental scenario. This bodes well for the booming multifamily apartment developers.

If you have a development project, or an investment property, in need of debt financing, equity co-investment, or an experienced development/operational partner, please give me a call.