Economists Study the Effect of Student Debt on Access to
Homeownership
Source: NAR
The rising level of student debt and the relatively high default rates for student loans have raised concerns
about the impact on future homeownership among student borrowers. Federal Reserve Board economists
Dr. Daniel Ringo and Dr. Alvaro Mezza recently presented the results of a paper estimating the impact of
an increase in student debt on homeownership.
Making sense of the story

A 10 percent increase in student loan debt decreases the homeownership rate by one to two
percentage points 24 months out of school.

In terms of numbers, a 10 percent increase in tuition fee (which is associated with student debt)
reduces the number of potential homeowners by 280 individuals per 10,000 college goers two
years after exiting school, which is equivalent to 170 individuals per 10,000 individuals.

A 10 percent increase in student loan debt causes a 0.6 percentage point increase in the
probability that the borrower falls into the subprime category (credit score of 620 or less) and a
0.8 percentage point increase in the probability that a borrower falls into deeply subprime.

A 10 percent increase in debt is associated with a 0.7 percentage points increase in delinquency
rates.

The authors did not find conclusive evidence that an increase in student loans leads to a lower
mortgage balance.

Notably, an increase of 10 percent in student debt only delays the home purchase rate of a given
cohort by about three months, based on the authors’ estimates.

The authors caution that tighter credit underwriting standards after 2005 suggest that the drag of
student debt on homeownership may be greater, with lenders more sensitive to debt-to-income
and loan-to-value ratios.
Read the full story
http://economistsoutlook.blogs.realtor.org/2016/03/29/federal-reserve-board-economists-present-on-theeffect-of-student-debt-on-access-to-homeownership-at-a-realtor-university-speaker-series/#sf23330382
In other news …
U.S. Home Prices Still Rising at Steady Clip
Source: Wall St. Journal
Will the housing market continue to experience tight inventory, thereby leading to rising prices and sales
volatility? According to the latest S&P/Case-Shiller Home Price Index, the answer appears to be yes, as
home prices continued rising at a steady clip in January with the index rising 5.4 percent in the 12 months
ended in January, slightly greater than a 5.3 percent increase in December. The 10-city index gained 5.1
percent from a year earlier and the 20-city index gained 5.7 percent year-over-year. While home-price
growth appears to have stabilized at an annual rate of close to 5 percent, the pace of sales has fluctuated,
in part because of a lack of homes for sale and because high prices have started to scare some buyers.
Read the full story
http://www.wsj.com/articles/u-s-home-prices-still-rising-at-steady-clip-according-to-survey-1459256774
Rising construction costs squeeze housing supply
Source: HousingWire
Housing demand in major cities and urban areas is high, but the price to build is expensive, driving prices
continually higher. According to analysis presented by Pacific Union Insights, a lack of new construction
is a major supply problem facing many desirable and economically vibrant U.S. cities, with California
experiencing one of the most severe shortages. California’s regulatory environment poses many obstacles
to new construction, causing land prices, labor costs, and home prices to appreciate well above the
national average. Millennials in particular are struggling to save enough money for a home since prices
are rising faster than their pay.
Read the full story
http://www.housingwire.com/articles/36620-rising-construction-costs-squeeze-housing-supply
Hot Housing Markets Pinch Seniors
Source: Wall St. Journal
More than 6.1 million people age 65 and older rented their primary residences in 2014, up 29 percent
from 2001, according to Harvard University’s Joint Center for Housing Studies. But with high housing
costs and rents increasing, many seniors are facing the financial challenge of affording rent, especially on
a fixed income. Seniors have become susceptible to rent increases, particularly in high-demand areas.
Many seniors who lost homes in the housing crash will be renting for the rest of their lives, because they
have less time than younger households to recover financially. Of all renters, those age 75 and older have
the greatest incidence of “severe” cost burdens, meaning more than half of their incomes go to rent,
according to Harvard research.
Read the full story
http://www.wsj.com/articles/hot-housing-markets-pinch-seniors-1459416602
Shiller Touts Homeownership as a Savings Program and Investment
Source: Fox Business
One of the economists who developed the S&P/Case-Shiller Home Price Index, Robert Shiller, touted the
benefits of a home as an asset. He stated, “The other thing about housing is that if you put yourself into a
mortgage and you pay it off, you’re putting yourself into a saving program. A lot of people don’t save
outside of some kind of a discipline device like that. So in that sense housing is a good investment.”
Shiller also commented that following the recession, people aren’t as impressed by big McMansions
anymore as they used to be and that housing markets are substantially driven by psychology, i.e. the way
people think.
Read the full story
http://www.foxbusiness.com/markets/2016/03/29/robert-shiller-housing-market-driven-bypsychology.html
Survey: More Buyers Confident that They Understand the Home-Buying
Process
Source: HousingWire
Buyers are becoming more confident that they understand the home-buying process, according to a
survey of 1,000 potential home buyers by the online brokerage firm Owners.com. The survey found that
69 percent of respondents gave themselves an “A” or “B” grade when it comes to understanding the
home-buying process, suggesting confidence in their ability to navigate the real estate market. Also, 80
percent of home buyers are confident that the 2016 home buying environment will be as good as or better
than it was five years ago, and 92 percent say that mortgage interest rates are “somewhat to very
important” to their decision on when to buy.
Read the full story
http://www.housingwire.com/articles/36652-survey-most-homebuyers-would-prefer-to-purchase-theirhome-online?eid=311683318
What you should know …

U.S. household spending has fully recovered since the latest recession, but income hasn’t,
squeezing budgets and pushing many lower-income families into the red, according to a Pew
Charitable Trusts report.

Pew found that as of 2014, median income before taxes had fallen by 13 percent from a decade
earlier, while expenditures had increased by nearly 14 percent. That left families across the
income spectrum with fewer funds for savings and investment.

Housing, transportation, and food drove much of the rise in spending, leaving families with less
financial wiggle room. Rent is now eating up nearly half of the income of low-income families,
Pew found.